Morgan Stanley initiated coverage of machinery stocks belonging to the three industry subgroups — trucks and suppliers, agriculture and construction — in a Friday note.
Morgan Stanley analyst Courtney Yakavonis initiated coverage of the following stocks:
Trucks and Suppliers
- PACCAR Inc PCAR: Underweight/$69
- WABCO Holdings Inc. WBC: Overweight/$159
- Cummins Inc. CMI: Equal-weight/$173
- Rev Group Inc REVG: Equal-weight/$32
- Deere & Company DE: Overweight/$195
- CNH Global NV CNH: Equal-weight/$14.50
- AGCO Corporation AGCO: Equal-weight/$69
- Caterpillar Inc. CAT: Overweight/$185
- Oshkosh Corp OSK: Equal-weight/$86
- Terex Corporation TEX: Equal-weight/$45
- United Rentals, Inc. URI: Overweight/$194
Trucks And Supplies
NAFTA Class 8 sales will peak in 2018, Yakavonis said. Morgan Stanley is below consensus on 2019 estimates.
The analyst sees limited upside to truck OEMs from earnings per share revisions. Additionally, potential electric vehicle disruption is likely to exert pressure on multiples in the firm's bear case, Yakavonis said.
Secular safety and autonomous tailwinds benefit WABCO, according to Morgan Stanley.
Overweighted Deere is likely to be supported by the North American cycle and a potential rebound in corn and soybean prices, Yakanovis said. Inventory headwinds are projected for AGCO, while the analyst said diversification makes CNH relatively less appealing.
Morgan Stanley sees rising earnings per share revisions for construction machinery companies due to strong end markets, a robust replacement cycle and supportive inventory levels. Valuations of the stocks of these companies look sustainable, Yakavonis said.
The firm named Caterpillar as its top pick in this segment, while it sees United Rental surging in North American equipment rentals.
Here's how the stocks have performed over the last year:
- PACCAR: Down 0.71 percent.
- WABCO: Up 18.18 percent.
- Cummins: Up 4.16 percent.
- REV Group : Down 6.09 percent.
- CNH: Up 31.16 percent.
- AGCO: Up 5.79 percent.
- Caterpillar: Up 51.64 percent.
- Oshkosh: Up 9.49 percent.
- Terex: Up 22.87 percent.
- United Rentals: Up 29.90 percent.
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