Industrials

Report by Behind the Numbers

Among the 19 companies analysed by BTN, those with the biggest risk of overstated earnings from using fully depreciated equipment or unusually long depreciation lives compared to the industry include Allegion, A.O. Smith, Insteel Industries, Trane Technologies and Masco. Meanwhile, they see Simpson Manufacturing, Advanced Drainage Systems, AAON, Trex and Builders FirstSource as being positioned to start seeing lower depreciation expense and capital spending. These companies are already years into modernisation and expanding their equipment bases. Their depreciation has risen and been a headwind to earnings of late, but they may be about to see this level off and put them in a position of rising margins and FCF.

Industrials

Report by Northcoast Research

While LII's management has done a stellar job righting the ship over the past few years, Northcoast balances this view with their dour outlook for the North American residential HVAC market in the intermediate term, which is c.70% of the group's business. In their 36-page industry initiation report titled ‘Hot Air and Cold Realities’, they argue that while market participants appreciate the unit volume headwinds, they do not appreciate the pricing headwinds given the potential for intensifying competitive dynamics. As such, Northcoast initiates coverage of LII with a Sell rating and TP of $475 (30% downside). Other stocks covered include Carrier Global, Comfort Systems and Trane Technologies.

Report by Cerundolo Investment Research

The XLI had a strong close last week as it made a new all-time high. Guy Cerundolo has scored and ranked the sector and come up with a basket of long ideas. The highest ranked stocks include Parker-Hannifin (see chart), Copart, Eaton, Grainger, ITT and Trane Technologies.