The American machinery and construction industry is likely to see better times ahead, according to Barclays. The firm initiated coverage of the sector with a Positive outlook.
"Coming off several once-in-a-100-years cycles, the sales bases are the low, the political rhetoric is high and the risk-reward is still skewed positive despite the market run," analyst Adam Seiden said in a note.
Seiden initiated coverage of 18 companies with a Positive view.
"We believe the earnings, the denominator in P/E, will keep valuations attractive within the normalized 10-20x framework," he said in a Wednesday note.
The analyst expects the companies in his coverage universe to grow over the next two to three years, with investors willing to put a higher multiple on that growth. The about-face in investor sentiment toward the machinery space is mostly attributable to Washington and the prospect for tax reform, the analyst said.
Looking at macro and micro data pertaining to the industry, Barclays said GDP, PMI and manufacturing demand all have improved, while retail sales at Caterpillar Inc. (NYSE: CAT) and Deere & Company (NYSE: DE) have also progressed.
Among other metrics, the firm said:
- Inventories are in-line.
- Used equipment values in U.S. agricultural and construction sectors are either stable or slowly rising.
- Units and horsepower are converging.
- Mining equipment sales are up 80 percent year-over-year in the third quarter.
- Global infrastructure demand is turning favorable for heavy equipment.
Barclays' Initiations At Overweight:
- CNH Industrial NV (NYSE: CNHI)
- Hertz Global Holdings Inc (NYSE: HRI)
- Manitowoc Company Inc (NYSE: MTW)
- Welbilt Inc (NYSE: WBT)
- AGCO Corporation (NYSE: AGCO)
- Cummins Inc. (NYSE: CMI)
- Lincoln Electric Holdings, Inc. (NASDAQ: LECO)
- Terex Corporation (NYSE: TEX)
- United Rentals, Inc. (NYSE: URI)
In the engineering, construction and materials space, Barclays favored global infrastructure and communications:
- Jacobs Engineering Group Inc (NYSE: JEC)
- Vulcan Materials Company (NYSE: VMC)
- MasTec, Inc. (NYSE: MTZ)
- Fluor Corporation (NEW) (NYSE: FLR)
- Martin Marietta Materials, Inc. (NYSE: MLM)
- Summit Materials Inc (NYSE: SUM)
- Aecom (NYSE: ACM)
Deutsche Bank: Deere Has A Clear Path To Outperformance
Latest Ratings for CAT
|Dec 2017||Barclays||Initiates Coverage On||Overweight|
|Oct 2017||BMO Capital||Maintains||Outperform|
View More Analyst Ratings for CAT
View the Latest Analyst Ratings
See more from Benzinga
- Q3 Earnings Season: What We Know So Far
- CAT Just Landed On Its Feet With An Across-The-Board Q3 Beat
- A Preview Of Next Week's Blue-Chip Earnings
© 2017 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.