Carrier Global's Weaker Fundamental Metrics In Focus: JP Morgan Analyst Sees Less Room To Run

JP Morgan analyst C. Stephen Tusa downgraded Carrier Global Corporation CARR to Underweight from Neutral, raising the price target to $53 from $46.

The analyst writes there are "plenty of headwinds" that are recently deteriorating consumers in the broader market. Still, the industrials have some unique drivers from real mega projects that will hit positively over the next three years.

Particularly for the HVAC (heating, ventilation, and air conditioning) and the electrical equipment industries, the analyst sees addition of new capacity for the first time in many years.

Riding the growth, CARR stock has significantly outperformed its group, rising 17% over the last six months compared to the broader group's 2% increase. In the past year, it surged 45%, while the group only rose 22%, notes the analyst.

However, while analyzing gross margin versus operating margin to gauge how close margins are to being "normalized" or even peak, The analyst sees that CARR has less room to run owing to weaker fundamental metrics going forward.

Also Read: Carrier Global Downgraded: BofA Analyst Cautions About HVAC Concerns In Europe

With one of the "worst" cases regarding valuations, Tusa expects the lowest growth for CARR in the broader industry, both organic and EPS. Tusa is 9%/4% below the Street for '24/'25. 

This apart, looking at yields for the stocks relative to three-year averages, the analyst thinks CARR looks "worst" in the broader industry. 

When compared with the ISM Manufacturing Index, ISM New Orders, and ISM Inventories, the analyst notes that CARR Order growth has the smallest lag vs ISM.

On the positive side, the analyst thinks Resi exposure here is solid if the price does read through as telegraphed at recent competitor conferences. 

Trane Technologies Plc TT is a better way to play the similar exposures in Resi, Commercial, and Transport and remains more attractive from an FCF-based valuation, the analyst adds.

The analyst sees FY23 EPS of $2.7 (2-yr CAGR 13%). The consensus FY25 EPS for the company stands at $3.1. The analyst's FY25 estimate stands at $3.0. 

Price Action: CARR shares are trading higher by 1.57% to $54.29 on the last check Friday.