Global Industrials Trader #23: The HVAC stocks have been driving outperformance in the US as these stocks have benefitted from the infamously resilient US consumer and the hotter summer. Elsewhere, consensus revisions largely explain relative performance across cap goods, which accounts for lags in Japan and the A&D centric stocks.
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WIW #655: We lean tactically positive RBC (upside to FY21e) and IR (negative positioning), while remain tactically cautious EMR (downside to FY21e). PH is a little too tough to call: we think FY21 estimates lean a little too low, but June order rates will still likely remain at the lower end of the cap goods spectrum. AME should be solid, but the expectation bar here may be a little too high.
Our WR CGMI index expanded by 12.5pts to 53.3 in July. Not only does this mark the first reading above 50 since COVID-19 hit the lexicon, it also brings us the highest reading since the halcyon days of 1H18, before trade wars and tariffs also entered into the equation. Momentum is improving across all major economic blocs and we see continued M/M strength in the T3M reading in Aug. This suggests that the top-line upside we have seen emerge through 2Q20 reporting season could extend into 3Q20, and supports a rotation into short cycle industrials at a reasonable valuation (ETN, PH, FTV, DOV, SWK).
We return to the mash-up format as we process our post-2Q diligence for GE, TT, ETN and FLOW. Inside you will find the key details on the quarter, in addition to our updated models:
In aggregate, probably better than expected – certainly as it relates to cash burn, which is the key metric. Aviation margins are coming in weaker, but this could be the big bath quarter – this will be the area of focus. Forward looking commentary will be key, but the near term narrative does not change significantly based on what we have seen so far.
This week brings a flood of companies through the gate, so here are thoughts on the dozen EE/MI companies that will be reporting this week. We weigh positive ETN, JCI, SWK and OTIS; more tactically cautious into FTV, GE and TT. We also highlight risk of PFAS-related charges related to the recently signed consent decree between 3M and the State of AL.
WIW #654: Yes, it’s early. But we are seeing big beats and more companies are plugging back in guidance ranges. Earnings day reactions are volatile, but the market is generally selling revenue weakness, and buying consumer/residential strength (SWK, OTIS); WSO share gain in June/July is a positive read for CARR. We will be previewing the Week 2 reporters in more depth, in a separate note.
WIW #653: This week, we dig into some of the key trends from the early earnings reports and what to expect from the upcoming week when we will have HON, DOV, GWW and LII on deck.
We are 15% ahead of stale street, although upside is widely anticipated making for challenging set-ups – this is clearly no “see-through” quarter. On the long side, we highlight attractive set-ups for SWK, GWW, OTIS, RBC, DOV and HON. See pages 6-8 for more details on our EPS and YE20 Target Price revisions.
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