We think we are seeing real change, rather than a repeat of prior disappointing initiatives. The move towards enhanced segment disclosures and confidence in structural cost out initiatives, combined with portfolio actions, should be multiple accretive. We raise our YE19 target price from $105 to $109 – reiterate OP rating.
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The disposal of the BHGE stake is good news and we think marks the start of a period where we see more tangible and identifiably positive catalysts such as Power growth/margin inflection, FCF momentum and more aggressive B/S de-levering actions…and perhaps the re-entry of the MAX. Risk/reward remains extremely positive vs. $14 YE19 target price.
This week's rotation towards value beta caught many of us offside. We still think it is too early for this trade to truly work, and certainly management outlooks at recent conferences have been anything but confident. With that said, we emerge with increased conviction in our OP UTX and UP LII calls.
Do we like guidance cuts? No. But, are we surprised? No. Does HDS trade like a stock priced for downward earnings revisions? Yes. So let’s put this in perspective, following the relatively modest 4% pull back today. With continued share count shrinkage, and an attractive 8% FCF yield, we reiterate OP vs. Distributor peers.
As we all start ramping up into conference season, corporate NDR meetings and quarterly channel checks, we relaunch our Prep Pack. This 240-page document includes Question Banks, Abridged Earnings Transcripts and Cheat Sheets for Multi-Industry and Distributor companies under coverage.
Bottom line: Daily sales matched the 6% bogey and WRe of +5.8%. On M/M basis ADS was +3.9% and slightly above the normal seasonality of +3.4%. National (+12% Y/Y) account growth improved from July’s +10%, while non-national accounts (flat) growth was unchanged, implying continued mix headwind for 3Q. Demand is solid, but with List 4 effective 1 September, continued gross margin headwind remain in front. We also saw employee growth moderate to 4.4% Y/Y from average ~6% growth over the L12M.
WIW #609: We certainly hope so! But as it relates to the ISM, we highlight that it is becoming a lagging indicator and therefore less predictive of performance. Our view is that stocks are too pricey to generate meaningful outperformance, given 2020 EPS risks. And this risk could be compounded by USD headwinds.
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