Why 2020 Could Be Good for Selected Conglomerates and Industrial Leaders
After years of amassing large bulky operations, Wall Street’s mantra for 2019 and going forward is back to having sleeker streamlined business entities for investors to choose from. Conglomerates with 28 focal points where none of the managers could ever even have a chance of knowing each other are being more or less “deconglomerated” by Wall Street.
Deutsche Bank has made a key group of tweaks on its ratings universe covering industrials and conglomerates. Not all the moves would be counted as upgrades, and not all the moves would signal a “screaming buy” to investors. The calls still stood out after a hard sell-off in recent days just one week after stocks hit new all-time highs.
Despite risks to the U.S.-China trade war and slower global growth, many of the industrial stocks are handily outperforming the broad market. Some of the shares are even up over 50% year-to-date. While some color was added on some of the “Buy” ratings, consensus analyst target price data was from Refinitiv.
General Electric Co. (NYSE: GE) was the top stock that stood out in the broad calls. That said, GE still does not even have a Buy rating. GE was maintained with a Hold rating while its target price was raised to $12 from $11. GE shares close previously closed at $10.99 and it was down 1-cent toward the end of the day. Its consensus analyst target price is still down at $10.48 due to some very negative price targets remaining firm despite GE’s massive share price recovery in 2019. GE’s 52-week range is $6.40 to $11.84, and its shares have risen better than 50% year to date.
Emerson Electric Co. (NYSE: EMR) was kept with a Buy rating, but Deutsche Bank lowered its target to $81 from $82 based on valuation. Its shares previously closed at $72.61 and the stock was up 1.87% at $73.97 in Wednesday’s reaction. Emerson Electric has a consensus target price of $76.28 and it has been under activist pressure, but it has risen “only” 21% so far this year.
Honeywell International Inc. (NYSE: HON) was reiterated as Buy and the price target was raised to $199 from $189 (versus $174.85 close). its shares were up 1.3% at $174.80 after the call with a consensus target price of 185.55.
Parker-Hannifin Corp. (NYSE: PH) was reiterated as Buy and the price target was raised to $227 from $215 (versus $197.48 close) at Deutsche Bank. Parker-Hannifin shares were up almost 1.5% at $199.00 after the news with a consensus target price of $197.37.
Stanley Black & Decker Inc. (NYSE: SWK) was reiterated as Buy and its target was raised to $180 from $166 in the Deutsche Bank call. Its shares were previously at $151.80 with a $166.50 consensus target price and with a yield of about 1.8%. Stanley Black & Decker shares were up nearly 2% at $154.65 and its 52-week range is $110.54 to $162.15.
Many Hold ratings were accompanied by higher price targets. These were seen as follows:
- 3M Co. (NYSE: MMM) was maintained as Hold but its price target was raised to $175 from $160 (versus a $165.17 close). It is still down 13% year to date.
- Colfax Corp. (NYSE: CFX) was maintained as Hold but its price target was raised to $37 from $36 (versus a $33.43 close).
- Dover Corp. (NYSE: DOV) was maintained as Hold but its price target was raised to $119 from $107 (versus a $109.03 close). This is after better than a 50% run in 2019.
- Rexnord Corp. (NYSE: RXN) was maintained as Hold and the target was raised to $33 from $31 (versus a $30.69 close).
- Rockwell Automation Inc. (NYSE: ROK) was maintained as Hold and the target was lowered to $202 from $203 (versus a $194.04 close).
- Lennox International Inc. (NYSE: LII) was maintained as Hold but its price target was raised to $276 from $264 (versus a $248.57 close).
Illinois Tool Works Inc. (NYSE: ITW) was the one stock that was seen where Deutsche Bank maintained its Sell rating, but it still raised its target price up to $164 from $142 in the call. Its shares were up 1.4% at $173.06 and its consensus target price was $157.44 in that call.
Eaton Corp. (NYSE: ETN) was the key downgrade that was seen, down to Hold from Buy in the Deutsche Bank call. Eaton was up 33% so far this year, and the firm still raised its target price to $99 from $94 in that cautious call.
While many of these calls might not seem massive, industrials and cyclicals have remained muted and constrained during parts of the US/China trade war.
Wednesday’s full coverage of the top analyst upgrades and downgrades included AK Steel, Alcoa, CenterPoint Energy, Marvell Technology, Nike, Salesforce.com, Tesla, Tyson Foods, UnitedHealth, Zscaler and many more.