Industrials have long been a stable bet among U.S. equities paying reasonable dividends with a relatively defensive standing in the market. While they are not as volatile as tech firms or other growth stocks, they are consistent and they tend to hold up well in recessionary times. One big Wall Street firm thinks that it has picked out some winners within the sector.
BofA has issued a few calls with a focus on industrial firms. Andrew Obin was the lead analyst on the calls for the investment house. Most these calls were incredibly positive, forecasting solid upside for these manufacturing firms.
Obin made this research note as part of restacking his ratings in industrials. He views broad manufacturing demand as softening from the “sugar high” of post-COVID-19 recovery, particularly in consumer-facing sectors.
It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Honeywell
BofA upgraded Honeywell International Inc. (NASDAQ: HON) to a Buy rating, from Neutral, with a price target of $210. That implies upside of 21% from the most recent closing price of $173.34. As mentioned, Obin made the upgrade and was restacking his ratings in industrials, citing his view of a broad manufacturing demand softening from the “sugar high” of post-COVID recovery, particularly in consumer-facing sectors. Honeywell’s end market mix includes aerospace and oil and gas, along with longer-cycle nonresidential construction, and recent execution has been strong.
The stock traded at around $172 early on Tuesday, in a 52-week range of $167.35 to $236.86. Shares are down over 18% year to date. The dividend yield is 2.3%.
24/7 Wall St.Allegion
On Allegion PLC (NYSE: ALLE) Obin’s downgrade was to Underperform from Neutral. The $130 price target was cut to $110, which implies upside of 12% from the most recent closing price of $98.54. He cited the company’s residential and European exposure, as well as the lag relative to its peers on price increases. Recessionary risks and consumer slowdown pose material risk to Allegion’s 2022 guidance and 2023 consensus, according to Obin.
Allegion stock has a 52-week trading range of $93.05 to $148.70, and it traded near $95 a share on Tuesday. The stock is down 28% year to date. The dividend yield is 1.7%.
APi
BofA upgraded APi Group Corp. (NYSE: APG) to Buy from Neutral with a $23 price target. The implied upside from the most recent closing price of $15.10 is 52%. Approximately 50% of APi’s revenue comes from fire inspection and other recurring revenue, and its backlog provides visibility on the remaining project-based revenue, said Obin. He also noted that he came away from a recent meeting with management more confident around the operational improvements at Chubb Fire & Security.
The stock traded around $16 early Tuesday, in a 52-week range of $14.13 to $26.84. Shares are down over 40% year to date.
Flowserve
The Underperform rating on Flowserve Corp. (NYSE: FLS) was raised to Neutral with a $31 price target. The implied upside from the most recent close at $28.93 is 7%. While execution has been challenged, Obin views end market strength (with 44% of revenue from oil and gas) and valuation as offsets.
The stock traded at around $28 on Tuesday, in a 52-week range of $26.84 to $43.63. Shares are down over 9% year to date. Flowserve has a dividend of 2.9%.
AMETEK
Obin downgraded AMETEK Inc. (NYSE: AME) to Neutral from Buy. The $122 price target implies upside of 9% from the most recent closing price of $112.35. Obin views the company as a high-quality compounder but also notes its relatively high mix of short-cycle industrial exposure, which gives it more cyclical leverage. Overall, Obin sees AMETEK facing downside risks from higher cyclicality amid potential destocking and the stock’s “bottom quartile valuation.”
The stock has a 52-week trading range of $106.17 to $148.07, and it traded near $109 a share on Tuesday. The stock is down 26% year to date. The dividend yield is 0.8%.
ITT
For ITT Inc. (NYSE: ITT), BofA’s downgraded was to Neutral from Buy, and it cut the $113 price target to $74, implying upside of 9% from the most recent closing price of $67.81. Obin cited the company’s above-average mix of European revenue with 37% of the total, stating that if the recent U.S. dollar appreciation continues, its revenue and earnings growth in the second half of this year will be affected. Global auto production rates will improve as supply chain pressures ease for auto original equipment manufacturers, but the timing of this recovery continues to be pushed out.
The stock traded around $66 early Tuesday, in a 52-week range of $63.77 to $105.54. Shares are down over 35% year to date. ITT has a dividend yield of 1.6%.
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