Industrials

Why Citigroup Wants Investors in Top Conglomerates Now

Jon C. Ogg

The stock market carnage in the first three weeks of 2016 has been quite challenging for most investors. After close to a seven-year bull market, many are wondering if the market has peaked (or worse). So how is it that Citigroup can come up with Buy ratings on the top three conglomerates in America? Well, maybe some of the carnage and international pressure fears are simply overdone.

24/7 Wall St. could not help but notice that Citi came out with positive recommendations in new coverage on many of the top industrial names in America. What stood out, beyond the big upside in shares of General Electric Co. (NYSE: GE), is that the call was made just a day ahead of GE’s earnings report.

Citi started GE with a Buy rating and assigned the top conglomerate a $36.00 price target. With a prior $28.00 close, that would imply 28.5% upside — or over 30% if you include GE’s strong 3.2% yield from its dividend. What also stood out was that GE has a consensus analyst price target of $32.38 and a 52-week trading range of $19.37 to $31.49. GE already has pulled back far from its bullish and bearish target for 2016, because GE was a $31.15 stock at the end of 2015. Citi’s $36.00 price target for GE is $2.00 shy of matching the highest analyst target price.

Two other conglomerate calls stood out as well in the mega-cap conglomerate sector.

3M Co. (NYSE: MMM) previously closed at $136.96, and it was started as Buy at Citi with a $166.00 price target. If you add in close to a 3% yield, this implied close to 25% in upside. 3M has a consensus analyst target of $159.29 and a 52-week range of $134.00 to $170.50. Note that 3M has pulled back about $10.00 from its bullish and bearish outlook for 2016. Citi’s 3M target of $166.00 is still about $12.00 shy of matching the highest analyst target price.

Honeywell International Inc. (NYSE: HON) was also started as Buy with a $122.00 price target. That price target is actually up 26.7% from the prior $96.24 closing price, and that is without considering its 2.45% dividend yield. Honeywell has a consensus target price of $115.05 and a 52-week range of $87.00 to $107.41. This $122.00 target is only $3.00 short of matching the top analyst price target.


Other key analyst calls from Citi’s industrial views were seen as follows.

Illinois Tool Works Inc. (NYSE: ITW) was started as Buy with a $98.00 price target. That was versus a $81.34 prior close, and the consensus analyst target is in line with Citi at $97.85. The 52-week range is $78.79 to $100.14, and the dividend yield is 2.7%.

Ingersoll-Rand PLC (NYSE: IR) was started as Buy and given a $60.00 target price. That is versus a $48.92 close. The consensus analyst target is $64.65, with a high analyst target of $78.00. The 52-week range is $$47.08 to $70.93, and the dividend yield is 2.3%.

Investors have very mixed views when it comes to conglomerate stocks. Many are deemed too big and slow to keep up in a rapidly changing environment. The flip side is that conglomerates have enough moving parts that they are bound to have some safety nets as certain aspects of business slow or see slower growth.