巴克莱-美股-投资策略-美国多产业策略：ISC会议要点-2019.2.25-54页.pdf

Equity Research 25 February 2019 CORE Barclays Capital Inc.and/or one of its affiliates does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.PLEASE SEE ANALYST CERTIFICATION(S)AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 44.Restricted-Internal U.S.Multi-Industry ISC Conference Takeaways 22 Multi-Industry companies attended our Industrials Select Conference in Miami on Feb 20-21.Overall,our impression on top-line demand was that most areas of weakness in Q4 have not improved yet in Q1,but this softness does not seem to have spread to other markets.We did hear further reminders that 2019 is something of a back-end loaded year,with EPS growth more weighted in the 2H for many companies.Given the organic top-line slowdown this year,ongoing cheap debt/low financing costs,as well as the commentary from various corporates,we came away from the conference thinking that the conditions are in place for heightened Multi-Industry M&A activity.In terms of profitability,price/cost headwinds are lingering for several companies,but most seem confident that these should largely dissipate by Q2(assuming status quo in the tariff environment);we estimate that overall sector incremental margins recover to 30%in 2019,after 15%in 2018.Investor sentiment:The Audience Response Survey data suggests that,following the run-up in the sector this year(+18%against the S&P+11%),investors are not willing to re-rate valuation multiples much higher;on average,the ARS data showed that investors are willing to pay 16.0 x in terms of 2019 P/E for Multi-Industry names,against 17.2x a year ago.Relative to its LT average,the MI sector is at a slight P/E premium(0.5 standard deviations above its historical relative multiple).Hence,although the stocks likely perform well as we await China-US trade tension resolutions,the path for further outperformance following such news is less clear.All-in,since the conference a year ago,Industrial stocks are down slightly,against the S&P up slightly;we remain comfortable with our Neutral Industry weighting.Within the sector,we continue to think the three classic conglomerates offer the most attractive risk/reward profile over the balance of 2019(see our 2019 Outlook report Sentiment shift is attractive;December 17,2018 for more details).Reasonable start to the year for overall demand:The sector sold off sharply in late 2018 partly because of a deterioration in fundamentals in various markets(China,Automotive,Electronics,US onshore upstream O&G/pressure pumping,pockets of weakness in Europe),and a concern this would spread to broader industrial demand.What we heard at the conference suggests the weaker markets are still soft;MMM stated that China,Auto,Electronics may not pick up until the 2H,while GDI noted that Upstream Energy would be down substantially in Q1.Hence,several companies underlined that 2019 will be a back-end loaded year.At the same time,the weakness does not seem to have spread(yet?)to other markets-Commercial Aerospace and Healthcare for instance seem robust still,while HON(in O&G)and FLOW have seen project activity resume following a pause in late Q4.There were one or two signs that we may be seeing a possible narrowing of the curious dis-connect between weak European macro data(GDI Industrial)and strong Industrial sales growth in Europe(per our report Learnings from Earnings 5:EMEA resilience;February 3,2019).UTX raised some eyebrows with commentary regarding declining profits in its Commercial businesses(HVAC/Elevators/Fire&Security)in Q1(we have updated our model for Carrier and continue to expect EBIT declines at Otis in Q1),but our conversations with peer companies do not suggest a downward shift in broad Construction industry trends YTD(the US housing market feels better according to SWK).We show inside the ARS data and y-o-y comparisons.INDUSTRY UPDATE U.S.Multi-Industry NEUTRAL Unchanged For a full list of our ratings,price target and earnings changes in this report,please see table on page 2.U.S.Multi-Industry Julian Mitchell+1 212 526 1661 BCI,US Lee Sandquist+1 212 526 3717 BCI,US Jason Makishi+1 212 526 5335 BCI,US Barclays|U.S.Multi-Industry 25 February 2019 2 Summary of our Ratings,Price Targets and Earnings Changes in this Report(all changes are shown in bold)Company Rating Price Price Target EPS FY1(E)EPS FY2(E)Old New 22-Feb-19 Old New%Chg Old New%Chg Old New%Chg U.S.Multi-Industry Neu Neu Gardner Denver(GDI)EW EW 26.74 25.00 25.00-1.94 1.94-N/A 2.10-Source:Barclays Research.Share prices and target prices are shown in the primary listing currency and EPS estimates are shown in the reporting currency.FY1(E):Current fiscal year estimates by Barclays Research.FY2(E):Next fiscal year estimates by Barclays Research.Stock Rating:OW:Overweight;EW:Equal Weight;UW:Underweight;RS:Rating Suspended Industry View:Pos:Positive;Neu:Neutral;Neg:Negative Barclays|U.S.Multi-Industry 25 February 2019 3 Summary Continued Inventory levels seem normal:There has been much discussion over the past 9 months regarding the possible concertina effect of a pre-buy ahead of tariffs,and the scope for a hangover/de-stock once the tariffs are implemented/the feared tariff increases did not actually occur.Q4 did seem to show some impact of de-stocking on the Short Cycle General Industrial businesses of several companies in our coverage,but most management teams at the conference with such exposure noted that inventory levels appear reasonable at their OEMs and distributors,and there had been little fluctuations in inventories so far this year.M&A to pick up:We think M&A could pick up for many Multi-Industry companies,given (i)Ongoing Western central bank easing allows for cheap deal financing costs;(ii)Slowing organic demand growth in 2019(we estimate average organic sales growth slows by 1.5%this year,from 6%in 2018)may drive up the appeal of acquired growth;(iii)It has been some years since many of the larger companies(such as DHR,ETN,HON,JCI,MMM,PH,ROP)undertook meaningful M&A;(iv)Many of the smaller companies(FLOW,GDI,GTES,HDS,RBC,RXN)are less-levered than in the past.Regarding the HVAC market in particular,where possible M&A has been a major discussion topic for the past 12 months,UTX laid out some fairly clear conditions that it would need to see for a Carrier merger(as opposed to a spin);LII remains the company that sounds keenest to undertake a transaction as an acquirer.Inflation headwinds may be peaking:Companies such as SWK that struggled with input and broader cost/tariff headwinds in 2018 are still suffering a margin headwind in Q119,but in common with peers,it suggested that we should soon see an improvement;SWK is expecting its operating margins to rise y-o-y in Q2,for the first time in many quarters.FTV also noted that while its PI business can offset tariff pressures on a$basis,margin rates will still be subdued early in the year,with a stronger 2H19.HVAC companies sounded confident in their ability to offset any further cost inflation(metals prices have enjoyed a decent bounce YTD)via higher prices,as industry competitive dynamics remain very disciplined.Recurring sales push/business mix changes:Many companies provided updates on their IoT/Digital strategies,with DHRs presentation under-scoring an increased push,particularly at its E&AS segment.FTV and IR are making faster progress in their recurring/contractual service business(the former largely due to substantial portfolio changes)pushes than we had expected.Even MMM,whose business is very short cycle/hardware centric,has moved to bulk up its software assets in Healthcare,via the M*Modal acquisition.The dilemma for many management teams is that the move towards software/recurring sales can be materially accelerated by M&A,but the typical target valuations in this area are likely to be far higher than the acquiring companys multiple,in most cases.In the next industrial downturn,it will be intriguing to see to what extent these business mix changes mitigate the typical downwards cyclicality of sales.Stocks:As the probability of imminent Industrial recession has seemingly receded YTD,Short Cycle names have re-rated higher off depressed valuations(something we thought was likely,per our report Short Cycle Update:All we have to worry about now are estimates;January 6,2019),and with a broader growth slowdown still underway(in Europe and China,although the US appears very robust after some distributor adjustments in Q4),they no longer look tactically attractive following this bounce.PH is the one name whose tone has been noticeably more guarded than other Short Cycle names,and hence we think this one offers some asymmetric appeal if its top-line Barclays|U.S.Multi-Industry 25 February 2019 4 Industrial guidance is correct/stays muted into FY20(June fiscal year end),other companies will start missing estimates,and if the peers are correct in their more bullish outlook,PHs Industrial organic sales growth should accelerate considerably over the next 12 months;management also sounded very confident on incremental margins entering FY20.Construction still seems to be a decent market,although the outlook for US Resi,China and Europe is choppier;SWK in particular may offer some appeal as its tone on Construction/housing demand was very subdued on the Q4 earnings call,and there is scope for this message to become more bullish over the year,in-line with peers.UTX sounded a little cautious on US Resi HVAC demand in January,but we think Carrier may be bearing the brunt of some channel adjustments in this market;it is worth noting that its FX headwinds are largest in Q1,and the productivity tailwinds are 2H loaded.If price/cost headwinds really have passed the worst,this should benefit SWK in particular,as it has to deal with$0.7bn of headwinds over 2018-2019(relative to base 2017 EBIT of$1.9bn).On the top-line,SWK also highlighted that it may have another Breakthrough Innovation in Tools over the next 12 months.SWK represents the clearest beneficiary in the sector from any resolution of trade tensions.Regarding the back end loading of 2019,GDI(Upstream Energy),MMM(due to China,Auto,Electronics),and UTX(Commercial side)emphasized this(DOV also reminded us of the seasonality of DFS earnings we have lowered our DFS assumptions slightly for Q1),but by contrast our Top Pick HON has an organic growth guide which is more front-loaded,with a conservative assumption of a 2H slowdown baked in(due to macro headlines over the past few months);the slowdown looks less likely given the YTD pick-up in PMT activity following the brief pause in late Q418.On the medium-term,we thought UTXs comments were very positive FCF is set to grow meaningfully beyond a large increase in 2019,there is room for the spin date to be pulled forward slightly(now a March-May 2020 timeframe,against May 2020 a month ago,and a 2H20 window 3 months ago),stand-up costs for Otis and Carrier are likely to net off to close to zero after 2-3 years and RemainCo corporate costs could fall sharply;we also heard a timeframe for Pratt operating margins to return to prior peaks(mid teens+)by 2025,and GTF engine profit headwinds are soon to start shrinking.In terms of self-help traction,DOVs new CEO Richard Tobin sounded very confident on the progress of the productivity initiatives(COGS and SG&A),as well as the fact that these measures do not seem to be having a detrimental effect on the companys organic top-line(which can be a risk if management teams become too inward-focused amidst restructuring efforts).On portfolio moves,ROK announced its Sensia JV with SLB,which we welcome as it reflects another step in managements efforts to rejuvenate top-line growth at the company,and we think it is sensible for ROK to expand its presence in mid and upstream O&G without spending vast M&A dollars on what remains a very cyclical end-market.ROKs position in automation/plants amidst rising IT penetration has been a focus of discussion for investors,but we think(per the PTC deal last year as well)the company is taking creative and sensible strategic steps to ensure that it does not fall behind.On business mix,IR management underscored the increasing service/recurring revenue nature of its portfolio,and it was interesting to hear that 40%of the aftermarket portion of the Climate business(which is 45%of Climate sales)is now contractual this should have positive implications for through the cycle growth and Barclays|U.S.Multi-Industry 25 February 2019 5 margins of the company,and imply higher valuations(given the lower earnings cyclicality that should ensue).It was encouraging to hear that Chinese Climate margins are growing again,and this is expected to continue.Management sounded in no rush to dive into HVAC M&A,even if there are moves elsewhere in the sector.IRs commentary on TK was encouraging(its backlog)in light of the declines in US Class 8 truck orders.We also heard an encouraging update regarding the business mix at DHR and FTV.At the latter,recurring sales have now reached almost one third of the total,ahead of plan,with 40%likely to be reached in the medium-term.Near-term,we were encouraged to hear that more M&A may be forthcoming post-ASP.Longer term,we thought the company gave a very re-assuring answer regarding the possible impact from the post-US EMV outdoor deadline spending slowdown at GVR it sounds like the EPS headwind may be as little as$0.10,three years out,with GVR globally still growing organic sales through the 2020s.On M&A,we could see DHR,HON,MMM,PH and ROP enact meaningful M&A this year,as could LII(if sellers of HVAC businesses emerge).Barclays|U.S.Multi-Industry 25 February 2019 6 FIGURE 1 2019 Catalysts for US Multi Industry Source:Barclays Research CompanyTickerScope for major cap.deployment?New financial targets/new CEO update?Portfolio change/strategic review?Other,more minor eventsAllegionALLEInvestor Day(March 12)ColfaxCFXSale of Air&Gas HandlingDJO Global Closes(Q1)DanaherDHRPossible large M&ADental spin(2H 19)DoverDOVFurther Productivity/OS UpdatesNew Operating System(Sept)EmersonEMREatonETNInvestor Meeting(March 1)SPX FlowFLOWFortiveFTVASP closes(March/April);Investor Meeting(May 16)Gardner DenverGDIExit of Upstream Energy?Investor Meeting(March 14)GatesGTESInvestor Meeting(Feb 26)General ElectricGECash transfer to GE Capital from IndustrialGuidance Update(Q1?)Healthcare IPO;O&G exit(2H19)LT Care teach-in;Wabtec close(Q1)HD SupplyHDSHoneywellHONPossible buyback step-upInvestor Meeting(May)Ingersoll-RandIRJohnson ControlsJCIUsage of Power sale proceedsKennametalKMTLennoxLIIPossible large HVAC M&AMMMMMMPossible large M&AM*Modal closes(1H 19)nVentNVTInvestor Meeting(Feb 27)Parker HannifinPHPentairPNRRegal BeloitRBCNew CEO(Q2)Rockwell AutomationROKRo