Oppenheimer Went To The EPG Conference; Here's What Happened

Oppenheimer published reports on companies at the EPG Conference this week and analysts Christopher Glynn and Patrick Schuchard gave their take on three companies that presented at the conference. Below are highlights along with current ratings and price targets.

Eaton Corp plc ETN - Perform, no price target

CEO Sandy Cutler discussed end markets, emerging FCF optionality and portfolio makeup at the conference.

“Cooper has fully delivered the portfolio balance and smoother cyclicality strategically desired and future M&A decisions will not be guided by any aspirational view of portfolio balance. Vehicle was noted as core to the portfolio in current thinking,” according to Glynn.

FCF was expected to accelerate into 2016 and a more detailed capital plan would be introduced in July.

The 2015 NAFTA Class 8 outlook for approximately 330,000 (up about 12 percent) was “largely sold out, with current bookings in part contributing to the forming 2016 outlook.” ETN expected “decent follow-through for continued strength,” Glynn said.

Eaton Corp plc recently traded at $72.70, down 0.14 percent.

Xylem Inc XYL - Outperform, $40 price target

CEO Patrick Decker indicated that “M&A will increasingly become a focus, leveraging a wider opportunity set outside of water pureplays (higher growth/margin areas),” according to the analysts.

Glynn observed that water “is very much a local issue that, given infrastructure is generally out of sight, gets little attention until threats of supply are well understood. With emergencies increasingly occurring, CA droughts are front-page news, and with XYL (and other water infrastructure players within our coverage) seeing encouraging backlog trends, we believe the time is near for the water theme to begin playing out.”

Emerging markets were also seen as growth opportunity with only 21 percent of the company’s revenue currently coming from such regions.

Management also reiterated 2015 guidance of 1-3 percent organic growth, 50-90bps OM expansion (ex-FX), 100 percent FCF/NI, and EPS of $1.80-1.90.

Xylem Inc recently traded at $36.94, up 0.44 percent.

Honeywell International Inc. HON - Outperform, $117 price target

Chairman and CEO Dave Cote highlighted Aero and PMT as segments approaching growth inflections.

“New PMT capacity supports heavy inflection in 2017 to ~$1B new revenue run rate (up from ~$400M in 2016, ~$250M in 2015),” according to the analyst note.

Cash priorities remained “high ROI capex ($5-6B over five-year plan, PMT peaks in '15), growing the dividend faster than earnings (increasing payout ratio), strategic M&A (+6-9% sales CAGR and $1 EPS through '18), opportunistic share buyback, and cash build (net cash ~$1-2B),” Glynn reported.

M&A prices were currently seen as too expensive, however, the company was keeping a close eye on the marketplace.

Management reiterated 2015 EPS guidance of $6.00 to 6.15 on revenues of $39.0 to 39.6 billion and margin guidance of 18.3-18.6 percent.

Honeywell International Inc. recently traded at $106.39, up 0.54 percent.