Barclays Upgrades US Multi-Industry Names, Sees Long-Term Plays If Traders Buy The Dip

US Multi-Industry names have been struggling “to capture investor interest” year to date and the group presents “an attractive entry point,” Barclays’ Scott R. Davis said in a report. He upgraded the sector from Neutral to Positive, which raising the rating on a number of companies.

The negative earnings revision cycle appears to be nearing an end, and there is greater visibility on key end-markets, analyst Davis mentioned. He added that a recovery of the emerging markets, oil remaining over $50 and M&A activities also supported the bullish stance.

Rexnord

Davis upgraded the rating on Rexnord Corp RXN from Equal Weight to Overweight, while raising the price target from $20 to $26. He expects the numbers to bottom out in 2016, with upside coming from a recovery in factory/capital spend and continued growth in non-res construction.

While Rexnord’s balance sheet supports deals or share buybacks, the company also has assets it could sell if the need arises, the analyst stated. He further wrote, “The stock has been a laggard YTD and did not participate in the recent oil/gas momentum rally.”

ITT

Davis upgraded the rating on ITT Inc. ITT from Equal Weight to Overweight, while raising the price target from $35 to $41. Shares have lost 7 percent year-to-date, and are down 17 percent from their April highs.

While numbers should trough within a couple of quarters, there is significant upside from any improvement in oil/gas. The analyst added that the company was poised to benefit from restructuring spend in 2017.

“This is a company with lots of levers to pull. Limited debt, an asbestos liability that seems ripe for sequester, and assets that could be sold at accretive prices. The fluids business is a gem and brake-pads far better than generally perceived,” the Barclays report stated. It further noted that ITT had about 30 percent exposure to the emerging markets, significantly higher than the sector average.

3M

Davis upgraded the rating on 3M Co MMM from Equal Weight to Overweight, while raising the price target from $171 to $194. This company is most poised to benefit from the expected recovery in emerging markets, with these markets accounting for more than 35 percent of total sales.

“Also worth noting that the recent rally in EM FX will help 3M in an outsized manner. We also believe that 3M management is best-in-class and the portfolio is uniquely competitively advantaged,” the analyst wrote.

Rockwell Automation

Davis upgraded the rating on Rockwell Automation ROK from Equal Weight to Overweight, while raising the price target from $118 to $141. He commented that the company was “worth too much to too many people.”

Rockwell’s high asset quality provides a base for developing IoT [Internet of Things] solutions. The company’s earnings seem to be bottoming out, and oil, gas and mining should help numbers by mid-2017. The Barclays report further mentioned, “Factory capex should begin to recover in 2017 and the CEO changeover provides some optionality for more aggressive B/S usage.”

Rockwell’s shares inflected to positive territory on Friday, reacting to press reports of potential strategic interests, which should at least provide downside support, the analyst said.

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