Ahead of the Bell: ITT, 4 others downgraded

Stocks of 5 companies that make equipment to control manufacturing processes are downgraded

• On 8:42 am EDT, Wednesday September 16, 2009

NEW YORK (AP) -- Rising stock prices of five producers of equipment that controls manufacturing and processing activities led an analyst Wednesday to downgrade the shares.

Robert W. Baird & Co. analyst Michael A. Schneider said that since a low in March shares of industrial process control companies have surged an average of 82 percent -- 26 percentage points more than the Standard & Poor's 500 index.

As a result, there is "limited upside" from current levels for shares of Quincy, Mass.-based Altra Holdings Inc.; Richmond, Va.-based Colfax Corp.; Northbrook, Ill.-based IDEX Corp.; White Plains, N.Y.-based ITT Corp.; and Golden Valley, Minn.-based Pentair Inc.

Pentair and IDEX have topped his price targets, and Altra and Colfax are near his price targets. Only ITT, which closed Tuesday at $51.63, was still some distance from the $56 price target he has on the shares.

The analyst downgraded all five stocks to "Neutral" from "Overweight."

"We believe the sector's initial bounce driven by a positive turn in sentiment is largely complete," he said in a client note.

Schneider also forecast a post-December drop in the purchasing managers index, or PMI, which is maintained by the Institute for Supply Management.

The index measures how much industrial equipment and goods U.S. purchasing managers are buying. A decline in the PMI is usually followed by less demand for process control company equipment, which typically cuts shares prices.

Historical patterns indicate that a PMI drop could last as long as 16 months, he said.

The process controls sector has historically underperformed the S&P 500 when the PMI is declining, Schneider said.

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