- On Monday, Citi analyst Timothy Thein and his team suggested a pair trade for North American truck stocks.
- The firm recommended Buy-rated shares of PACCAR Inc PCAR over Neutral-rated Cummins Inc. CMI.
- In addition, the experts issued a Buy rating on shares of WABCO Holdings Inc. WBC.
In a report issued Monday, analysts at Citi upgraded shares of PACCAR from Neutral to Buy, while downgrading Cummins from Buy to Neutral. The experts fixed respective price targets of $54.00 and $95.00. In addition, they issued a Buy rating on WABCO, accompanied by a $110.00 price target.
The analysts explicated that, while freight fundamentals remain sluggish, and “excess truck inv’s will weigh on near-term build rates,” history suggests relative share underperformance could be diminishing. The experts believe PACCAR is an “earlier cycle” beneficiary as sentiment shifts, and continue to recommend WABCO – especially after the marked decline the stock has experienced in recent weeks.
Related Link: 2 Pair Trades: Goldman Over JPMorgan; Schwab Over Raymond James
Why PACCAR Over Cummins?
WABCO: Less Of A Play On North America
Image Credit: Public DomainThe research note went on to explain why the firm prefers PACCAR over Cummins. The analysts commented that sustained growth in high-margin parts coupled with an ongoing rebound in Western Europe “should help to drive more modest ’16 decrimentals than the bears assume.” In addition, at Citi’s $54 price target, the experts see it trading at a relative discount to the market.
On the other hand, the report continued, while downside at Cummins seems limited, “key end markets losing momentum, plus recent deterioration in EM-specific risk appetite” create a not-so-attractive risk/reward profile.
Although WABCO is clearly not immune to decelerating global growth, the company does stand out in the machinery group, based on Citi’s HSD top/bottom line growth outlook for 2016 – and a ROIC above 40 percent.
The analysts think “a premium multiple is justified,” but have decided to trim their valuation range (taking their target to $110) to account for lower market and peer multiples, and augmented risk “relating to its longer-term tax liability (cash taxes).”
Shares of all three companies were trading down on Monday afternoon.
Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.