5 Stocks Barclays Just Downgraded (And 1 It Upgraded)

Scott Davis of Barclays maintained a Neutral rating on the entire US Multi-Industry sector due to a weaker emerging market outlook, higher emerging market foreign exchange risk, and slower export markets. "It began with popping of the mining bubble three years ago, oil & gas end of last year, and now an end to the 10+ year emerging market cycle, which we believe ended mid-2015," Davis explained in his note. "It is the latter that concerns us the most, mainly because we have not had a major emerging market dislocation since the late 90's and the downside to both growth and margins could be substantially higher than most are modelling." Davis continued that it "dawned" on him that many of today's analysts never had to model an emerging market currency "collapse," have never had to model negative price, and "can't even conceive the reality" that margins in countries like Brazil and Russia could drop to zero (or negative) during the current cycle from a peak of 15 to 20 percent.

Davis downgraded shares of

to Equal weight from Overweight with a price target lowered to $53 from a previous $78. According to Davis, Eaton's execution has been "less than heroic," its portfolio is "beginning to show its traditional cyclical roots," and the company is in "limbo" ahead of the CEO changeover in 2016 at a time when the firm's cyclical businesses are in for a "rough time." Davis added that "this has been a frustrating story" but the stock is "inexpensive" and the timing of his downgrade could coincide with the bottom. However, a scenario of outperformance is "mostly valuation led" which is "hardly comforting" given the macro environment and history of the stock being a "value trap" early in a downcycle.

Davis downgraded shares of

to Equal Weight from Overweight with a price target lowered to $91 from a previous $133. Davis noted that he "sincerely loves" the culture of the company and its long term automation theme. However, the company's ability to outperform "becomes a tough call" in the current environment, especially when factoring in the reality that M&A bids for the company "may be off the table" until there is a greater cycle visibility.

Davis downgraded shares of

to Equal Weight from Overweight with a price target lowered to $16 from a previous $26. According to Davis, Rexnord is "another very frustrating stock" and a downgrade when the stock is trading near its 52-week lows "feels terrible." However, the analyst argued that the company has "not proven" that it deserves to trade at a higher valuation. Davis added that Rexnord's stock "falls into the camp of value trap," and he has "no idea" where the company's financials will bottom. He also noted that it is not clear "why investors will feel compelled" to own the stock as the company has been a "disappointment" since its IPO.

Davis downgraded shares of

to Under Weight from Equal Weight with a price target lowered to $23 from a previous $40. Davis argued that Colfax's cyclical exposures are "outsized" and the company's approximate 50 percent exposure to emerging markets "concerns us." In fact, the company's emerging market exposure is a "concern" over the next few years, especially ahead of a CEO transition whose plans (and outlook) are unknown. Finally, the analyst pointed out that the company faces losing one of its main assets – its low cost of capital.

Davis downgraded shares of

to Equal Weight from Overweight with a price target lowered to $31 from a previous $44. Davis stated that much like Eaton, Tyco has been a "frustrating" name as the stock's "defensive" nature and non-residential construction exposure could yield outsized core growth. However, the company is seeing "deterioration" in emerging markets, associated foreign exchange exposure, and oil & gas headwinds that "may more than offset any benefit" going forward. Finally, the analyst stated that the stock is trading at 17x his 2016 earnings per share estimate – a valuation which "seems full."

Davis upgraded shares of

to Equal weight from Underweight with a price target lowered to $30 from a previous $35. Davis' lone upgrade stems from the fact that after a "tough" couple of years the stock "seems low enough" to be considered "fairly valued." Moreover, its exposures to US housing is "comfortable" versus its peers. Davis did however note that his revised stance is "not a bullish upgrade" and he still has long term concerns related to rising technology threats (such as home automation) but it is "hard to imagine" that the company underperform more cyclical peers.