'Carried On For Long Enough': Carrier (CARR) Dips as Wolfe Downgrades to Peer Perform

Wolfe analyst Nigel Coe downgraded shares of Carrier Global Corp. (NYSE: CARR) to Peer Perform from Outperform as he sees limited scope for further relative multiple expanses.

Coe initiated the coverage of CARR in April 2020 at Outperform, with shares returning about 380% since then.

“Management has executed extremely well, demonstrating clear evidence of market share gains in residential and commercial markets, which we think could have sustainable tails. We also highlight solid margin execution and aggressive balance sheet de-levering, turbo-charged by a combined $4bn of net cash proceeds from the sale of its minority stake in Beijer and the upcoming close of Chubb ($3.1bn, 14.5x EBITDA). As a result, CARR has announced a $1.75bn stock repurchase program and is in a strong position to further accelerate capital deployment actions,” Coe said in a client note.

However, it must also be acknowledged, says Coe, that the stock outperformance has been strongly supported by “exceptional strength in the residential HVAC market.”

“HVAC demand is normalizing as we write, and this process will be particularly acute for CARR given the absence of inventory restock benefits going forward (CARR is the only major HVAC OEM to sell via wholly independent distribution channels, principally Watsco). We also highlight risks to the growth trajectory in Transport Refrigeration where we could see demand peak in 2022. These are not unknown risks, but end market momentum is deteriorating at a sharper pace than most of our coverage,” the analyst further added.

On valuation, the analyst adds:

“We note that the stock is now trading at a similar cash yield to TT, which we still view as the HVAC sector benchmark. As such, we see limited scope for further relative multiple expansion and for the first time during our coverage of CARR, we now sit modestly below consensus estimates: $2.38 WRe vs. $2.47 consensus for FY22.”

A new price target for CARR goes to $61.00 per share from the prior $58.00. Shares of the company are down 1.2% in pre-open Tuesday.

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