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).
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.
WIW #652: A hotter June underlines upside potential to 2Q/3Q residential demand, relative to expectations. Commercial likely remains a weak spot and the potential for distress in many CRE sectors is more powerful than likely modest offsets from indoor air quality system upgrades. LII appears best positioned into 2Q relative to EPS expectations; we continue to see the potential for relative multiple expansion at CARR and JCI.
The outlook for a Democrat clean sweep has moved closer towards a base case scenario. This is our first crack at reading the runes on potential tax, trade, climate, infrastructure and defense policy, and the impact for US industrials. Who do we judge as winners and losers? It is too early to tell, but see Ex 5-6 for how we balance perceived opportunities and challenges by stock. Clearly very early days, and we welcome feedback, as always.
Global Industrials Trader #22: The data are supporting the positive momentum that is priced into stocks, and we think the puck is now moving towards the possibility/probability of peak EPS recapture in 2021. We are modestly ahead on 2Q20e that is looming ahead, but it really is all about the shape of 2H recovery. Critical to sentiment will be how management teams frame the back half, and whether cost containment measures will continue to hold.
This week we recap on 1H performance and implications for 2H in light of the KPI’s on which we exit the half year. We also review latest construction spending data with implications for the HVAC industry. Finally, we sign off ahead of 4th July with a fun fact on ROK. We hope you get to enjoy a relaxing long weekend with your loved ones.
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