Goldman Cuts Machinery Group To Cautious: Upgrades Deere, AGCO, Downgrades Manitowoc, Terex, Navistar
In a report published Monday, Goldman Sachs analyst Jerry Revich lowered his view on the Machinery sector Cautious from Neutral given a continued challenging environment.
According to Revich, the Machinery group is experiencing three separate challenges. First, an extended downtown across commodity exporting countries where capital stock is high and infrastructure investment is slowing. The second challenge involves deflationary pressure on commodity capital expenditures. Finally, from a fundamental point of view, the group's valuation is in-line with the S&P index compared to a 20 percent discount during the 1990s' commodity exploitation period.
Revich further noted that he sees over 15 percent downside to consensus estimates along with the potential for multiples to drop 15 to 20 percent.
Deere Upgraded To Neutral
Revich upgraded shares of Deere & Company (NYSE: DE) to Neutral from Sell with a price target raised to $94 from a previous $78.
According to Revich, his Sell thesis assumed a multi-year challenging outlook for agriculture equipment and challenges with the company's used equipment value. However, the company delivered higher-than-expected margins due to "surprisingly strong" pricing and benefits from lower raw material costs (especially steel) that is expected to continue through at least the first half of 2016.
Bottom line, the analyst noted he is negative on the end market outlook for agriculture equipment, but Deere has the ability to improve its margins through the downturn.
AGCO Upgraded To Neutral
Revich upgraded shares of AGCO Corporation (NYSE: AGCO) to Neutral from Sell with a price target raised to $54 from a previous $36.
According to Revich, AGCO's sales have fallen below initial negative expectations, however, the company's decremental margin performance has been "much better" than expected due to strong cost controls, global tractor platform integration, currency tailwinds, pricing and raw material pricing benefits.
Looking forward, the company is expected to continue benefiting from foreign exchange as 16 percent of its product content comes from countries with regions with weak currencies such as Brazil, Japan and the European Union.
Manitowoc Downgraded To Sell
Revich downgraded shares of Manitowoc Company Inc (NYSE: MTW) to Sell from Neutral with a price target lowered to $14 from a previous $19.
Revich noted a "challenging" crane demand outlook due to a challenging outlook for commodity capital expenditure, a slowing infrastructure investment for commodity export regions, and high crane capital stock following a 10-plus year build-out cycle.
The analyst also added that the company's Foodservice will see a "muted" demand outlook as international restaurant chains slow their capital expenditure. This is a concern as the division has roughly twice the earnings power of Cranes.
Finally, the potential value creation from a Foodservice split does exist, although the analyst sees downside to the current stock price unless the division is valued at parity with the industry-leader Middleby Corp (NASDAQ: MIDD).
Terex Downgraded To Sell
Revich downgraded shares of Terex Corporation (NYSE: TEX) to Sell from Neutral with a price target lowered to $18 from a previous $24.
According to Revich, the global crane market will see continued demand pressure due to weak global construction activity and the fact that the aerial work platform cycle is past its peak level in North America.
As such, Terex is likely to see downside to its margins due to pricing pressure and foreign exchange troubles as the company is a net exporter from the U.S.
Navistar Downgraded To Sell
Revich downgraded shares of Navistar International Corp (NYSE: NAV) to Sell from Neutral with a price target lowered to $15 from a previous $22.
According to Revich, Navistar's debt, pension, warranty and truck trade-ins are "high and rising" at a time when used truck prices and US trucking rates have "softened" recently. As such, the analyst sees multiple compression risk as weak used truck prices could "push out" the company's margin recovery story.
Latest Ratings for DE
|Jan 2017||Berenberg||Initiates Coverage On||Sell|
|Dec 2016||Aegis Capital||Initiates Coverage On||Hold|
|Dec 2016||Bank of America||Upgrades||Neutral||Buy|
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