Day 2 of the EPG Conference has just wrapped and it is clear that the divergence between long-cycle strength and short-cycle weakness continues, as PH, ITW and DuPont continue to see inventory de-stocking persisting through 2Q19; tariffs are not viewed broadly as a threat to guidance, Our bullish outlook for UTX FCF expansion was supported by management, while GDI (NC, $35. 89) is confident in its synergy goals for IR Industrial. We believe ITW is leaning towards more aggressive acquisition growth ambitions, while ETN leans more towards portfolio focus.
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UTC CEO Greg Hayes presented earlier today (5/21/2019) at the Electrical Products Group (EPG) conference, which provided material updates on trading, guidance and the separation. Overall commentary was bullish and UTX remains a top pick. YE19 target price remains unchanged at $149.
The most interesting takeaways from EPG to date have been around the end markets, specifically HVAC consolidation, Security disruption, Industrial Automation spending patterns and gas power demand. No big surprises on macro reads, but there was understandably incremental caution around semi/electronics; we might look to upcoming presentations from UTX and EMR for a more real-time macro pulse check.
Following 1Q19 earnings and the 2019 investor event, we have become more bearish on 2019 earnings, partially offset by optimism that FTV can sustain its valuation premium. Following recent underperformance, risk/reward has improved. Reiterate PP rating.
Probably not, which is a real shame since we struggle to see another company outside of Silicon Valley, with as much product vitality as SWK. Management has managed well through inordinate external pressure to date, but with weaker price offset, cost levers already pulled hard and supply chain moves longer tail, we see potential for a little more incremental pressure to FY19e. Reiterate PP rating, but with improved risk/reward vs. unchanged $150 target price.
This week, we return to the subject of capex, with our latest survey data pointing to continued solid outlooks for US and global regions. With that said, these surveys were taken against the backdrop of a US/China trade entente cordiale, i.e. not quite where we sit today. Nevertheless, the data continue to point to greater levels of resilience in long/late-cycle stocks.
Well as simple as we can. There are many bridges for bulls and bears to cross, but one debate that we view as effectively settled is around leverage. We look at the balance sheet at the consolidated level and see a credible bridge to total consolidated financial leverage to fall to 2.6x EBITDA over the next two years, and as low as 1.2x if the GE Capital balance sheet ex-Insurance is completely liquidated.
We walk away more confident on margin runway, and potential growth levers from the many breakthrough initiatives highlighted. Balance sheet provides a lot of options for management and downside protection for investors.
Strong market share in 1Q19 with 3 H wins in Japan tells us that GE has viable technology. However, the real positive is a line of sight on Power backlog stability, which is a major component of improving free cash flow.
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