Barclays (BCS) has published its equity outlook for 2012. The report is dated December 13th and written by Stuart Linde and his equity research team. Their outlook on the industrial sector is positive, recommending above benchmark exposure. Considering their overall defensive positioning we will only discuss their top 7 picks from this sector.
Barclays top buys from the US Industrial industry include:
Boeing Co. (BA) is one of the largest companies in the aerospace industrial sector with a market cap of $52.47 Billion. BA is currently priced at $70.61 per share but Barclays have projected a target share price of $96.00 per share. Barclays expects BA to increase commercial airplane deliveries by more than 60% and will nearly double its EPS from 2011 to 2015. The increased production estimate is largely attributed to the recent agreement with the machinist union 10 months ahead of expiration of their current contract, removing the possibility of a strike. Barclays has rated BA as overweight, while rating the sector as positive. Billionaire Ken Fisher has the most bullish bet on BA with a $300 million position at the end of the third quarter.
Caterpillar Inc. (CAT) is known for making machines (trucks and industrial vehicles) and has a market cap of $61.36 Billion. CAT’s current price per share is $86.60 whereas Barclay’s estimated target price per share is at $115.00. CAT has a strong emerging markets presence (around 30% of sales), significant mining exposure (30% of sales), and a leading position in recovering construction machinery markets (15-20% of sales) – all of which are growth areas. Barclays highly recommends CAT. CAT is currently trading at a P/E Multiple of 10.1x whereas the 10-year average has been 15.1x.
Dana Holding Corp. (DAN) is known for supplying driveline products and power technologies with a small market cap of $1.94 Billion. DAN’s current price per share is $11.02 and Barclays expects this share price to stand at $23.00 by year end. DAN has boosted its margins through pricing and manufacturing reengineering, thereby improving EBITDA margins to 10% in 2011E from 6% in 2009. DAN’s revenue should also benefit from its exposure to the emerging markets – 20% in Asia Pacific and 16% in South America. Currently its trading at a P/E Multiple of 2.5x whereas its historical multiple stands between 4-5x.
FedEx Corp. (FDX) is a global leader in the airfreight and ground transportation space with a market cap of $26.71 Billion. FDX’s current share price of $83.62 is expected to swell to a target share price of $115.00, according to Barclays. Barclays’ expectation for continued expansion of the U.S. economy set against low inventory levels will create a better environment for FDX’s premium international export package network in 2012. Further, improved competitive dynamics within the domestic U.S. package market should support continued pricing momentum for FDX. The stock is rated as overweight and the sector as positive. Jason Capello had more than $200 million invested in FDX at the end of September.
Fluor Corp. (FLR) is in the engineering and construction space with a market cap of $9.15 Billion. The current share price is $48.09, however Barclays estimated target share prices is $82.00. FLR shares are poised to rise as its continued strength in mining and gradually improving oil & gas end markets could help propel backlog and earnings growth over the medium to long term. Barclays believes FLR’s multiple should rise over time given its better than average earnings visibility, strong diversification, and improving oil & gas end markets. For this reason Barclays rates the stock as overweight.
Honeywell International (HON) operates in the industrial land space with a market cap of $41.72 Billion. The company’s current share price is $53.03 and Barclays projected target price per share is $69.00. With incremental benefits from the restructuring done in the last down cycle, Barclays believes HON has a high likelihood of hitting numbers in 2012. HON is also a much improved company versus last cycle, with higher margins, better assets, higher returns on capital, better cash generation, more proven and seasoned management, and better competitive positioning. HON is trading at P/E Multiple of 12.x vs. a long-term average of 13x.
United Continental Holdings (UAL) is in the airline space with a market cap of $6.84 Billion. UAL’s current share price is $21.24 and Barclays estimated target price per share is $30.00. Barclays expects the continuation of industry capacity discipline to be a material catalyst as we enter 2012. For United Continental Holdings, Barclays believes that 2012 revenue prospects are under-appreciated and current valuation offers an attractive entry point. Currently, the stock is rated as overweight. PAR Capital had nearly $300 million invested in UAL at the end of September.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.