Morgan Stanley Overweight On WABCO, Deere, Caterpillar, United Rentals Among Machinery Stocks
Morgan Stanley initiated coverage of machinery stocks belonging to the three industry subgroups — trucks and suppliers, agriculture and construction — in a Friday note.
The Analyst
Morgan Stanley analyst Courtney Yakavonis initiated coverage of the following stocks:
Trucks and Suppliers
PACCAR Inc (NASDAQ: PCAR): Underweight/$69
WABCO Holdings Inc. (NYSE: WBC): Overweight/$159
Cummins Inc. (NYSE: CMI): Equal-weight/$173
Rev Group Inc (NYSE: REVG): Equal-weight/$32
Agricultural Machinery
Deere & Company (NYSE: DE): Overweight/$195
CNH Global NV (NYSE: CNH): Equal-weight/$14.50
AGCO Corporation (NYSE: AGCO): Equal-weight/$69
Construction Machinery
Caterpillar Inc. (NYSE: CAT): Overweight/$185
Oshkosh Corp (NYSE: OSK): Equal-weight/$86
Terex Corporation (NYSE: TEX): Equal-weight/$45
United Rentals, Inc. (NYSE: URI): Overweight/$194
The Thesis
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.
Agricultural Machinery
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.
See also: Stifel Upgrades Navistar On Long-Term Potential, Turnaround Story
Construction Machinery
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.
Price Action
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.
Related Link:
The Goldman Pair Trade In Machinery: PACCAR Upgraded, Terex Downgraded
Latest Ratings for WBC
Mar 2018 | Morgan Stanley | Initiates Coverage On | Overweight | |
Feb 2018 | BMO Capital | Maintains | Outperform | Market Perform |
Feb 2018 | Stifel Nicolaus | Maintains | Buy | Buy |
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