Credit Suisse Upgrades SPX Corp. To Outperform

Credit Suisse hosted investor meetings with SPX Corporation (NYSE: SPXC) CEO Gene Lowe on the West Coast and in St Louis last week. On Monday, the firm issued a report assuring they left the events feeling “much more comfortable with the growth outlook for the HVAC (3 year CAGR of 2-4%) and D&M segments (3 year CAGR of 2-6%), along with the medium term guidance of 300-400 of margin improvement within the Power Transformer business.”

However, leaving South African projects aside, the rest of the Power Gen segment continues to be a source of concern. Having said this, Credit Suisse pointed out that the management team has done a praiseworthy job thus far on sorting out the future of many underperforming assets. This has helped shift investor focus towards the less volatile businesses (HVAC and D&M), which contribute with more than 90 percent of the company’s core EBIT.

This backdrop sets the stage for a re-rate of the stock in 2016, the note stated. Even though the stock is already up more than 50 percent year-to-date, its valuation at 10.9 times the company’s earnings and 6.5 times EV/EBITDA on 2017 estimates still stands substantially below its peers’ average.

Consequently, Credit Suisse decided to increase its estimates for 2017 and 2018, to assume primary coverage, and to upgrade the stock to Outperform, setting a $17 price target (up from $13).

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.