Pentair (PNR +2.1%) and Roper Technologies (ROP +0.9%) are upgraded to Overweight from Neutral at J.P. Morgan, which believes the stocks have not received as much as credit as other electrical equipment and multi-industry stocks for anticipated Trump-related benefits.
On PNR, given low expectations set in October and less stock appreciation due to an already low tax rate, the firm sees potential for relative upside to organic growth in a better economy and less downside in a sluggish/steady-state economy, all at an attractive discount.
JPM downgrades TriMas (TRS +0.7%) to Neutral from Overweight, citing valuation following the stock's outperformance over the last three months; the firm also reiterates Honeywell (HON +0.5%), Ingersoll-Rand (IR +1%) and Danaher (DHR +0.3%) at Overweight, and Rockwell Automation (ROK +0.8%) at Underweight while naming General Electric (GE -0.2%) a "top avoid," expecting core operating performance to track below plan driven by weak fundamentals.
The United States again ranked first in global weapons sales last year, signing deals for about $40B, although the total size of the worldwide arms bazaar dropped to around $80B in 2015 from $89B a year earlier.
The study, "Conventional Arms Transfers to Developing Nations, 2008-2015," was prepared by the nonpartisan Congressional Research Service, a division of the Library of Congress.
Honeywell (NYSE:HON) shares recovered from their early morning swoon to finish at breakeven after a conference call in which company execs promised cost cuts and said demand should rebound in some markets, such as hand-held scanners and worker safety equipment, that suffered this year.
HON will “continue to simplify our footprint,” CFO Tom Szlosek said, in a sign the company could join GE and others in consolidating factories and possibly laying off workers.
COO Darius Adamczyk, who is set to succeed CEO Dave Cote in March, emphasized HON's push into software he believes can drive improvements in the efficiency and profitability of heavy machinery.
Adamczyk also said HON could benefit next year if oil prices continue to recover, which would aid the company’s petroleum-linked business lines, which include equipment and catalysts used in oil refining.
Shares fell early after the company forecast 2017 EPS of $6.85-$7.10, below analyst expectations.
Honeywell (NYSE:HON) -8.6% premarket after offering a tepid outlook, reaffirming Q4 EPS guidance of $1.74, at the low end of its earlier forecast of $1.74-$1.78 and below $1.75 analyst consensus estimate.
For FY 2017, HON sees EPS guidance of $6.85-$7.10 vs. $7.08 consensus, on a 1%-2% Y/Y revenue decline; the current sales consensus of $39.9B implies 1% growth over the 2016 consensus of $39.5B.
HON also anticipates 2017 organic sales growth of 1%-3%, segment margin expansion of 70-110 bps, and EPS growth of 6%-10%.
The potential EPS upside of U.S. tax reform should reach double digits for the four companies, while Eaton (NYSE:ETN) - already at a group-low ~10% global effective tax rate - should see only minimal upside, according to Winoker, who notes that tax deductibility of capex investment also would spark spending in the U.S.
Bernstein's covered companies derive between 10% (3M) and 60%-plus (Rockwell Automation (NYSE:ROK)) of revenues from customers’ capex spending, so the impact could be meaningful; the firm rates Allegion (NYSE:ALLE), DHR, Dover (NYSE:DOV), FTV, Honeywell (NYSE:HON), Ingersoll-Rand (NYSE:IR), Johnson Controls (NYSE:JCI) and Pentair (NYSE:PNR) at Outperform, with EMR, ETN, General Electric (NYSE:GE), Idex (NYSE:IEX), MMM and ROK at Market Perform.
The EU plans to boost its defense budget to its highest level in over a decade, setting up a €5B fund and sending a signal to Donald Trump that it intends to pay for its own security.
"This is not about an EU army, this is not about spending on the military instead of social security," European Commission Vice President Jyrki Katainen said. "We face multiplying threats and we must act."
"Given the outcome of the congressional election and learning more specifically who is (and isn’t) involved as space advisers, I anticipate a larger appetite for a change agenda and a better than expected potential to get at least some of their agenda accomplished," Lori Garver, former No.2 at NASA writes.
Expected areas of change: i) NASA’s bureaucracy/infrastructure is much too large and expensive. ii) NASA shouldn’t be spending so much money on Earth sciences. iii) The Moon is a better and more important destination than Mars. iv) Entrepreneurial space should play a larger role in all aspects of space. v) Space activities cut across international, civil, military and commercial arenas and should be run out of the White House, by a National Space Council, reporting to Vice President Pence.
She also takes a few parting shots at the departing administration: "NASA Administrator Charlie Bolden’s perceived lack of enthusiastic support of the White House agenda gave an opening to the opposition. Without a willingness to take on these special interests, the administration made a Faustian bargain to secure congressional support for Earth sciences, technology and commercial crew, in exchange for support of developing a large expendable rocket (the Space Launch System or SLS) and deep space capsule (Orion) for human spaceflight. While these parochial interests still exist, a Trump White House has the opportunity to more effectively defend its own agenda."
Donald Trump has called for eliminating the sequester on defense spending and initiating a military buildup, boosting troop levels and the number of ships and aircraft.
He seeks to fully offset the cost through "common sense reforms that eliminate government waste and budget gimmicks" and additional payments from countries where the U.S. has military bases, including Germany, Saudi Arabia and Japan.
Hawkers of civil and military aircraft - and the money to finance them - will try to drum up new business at aerospace expos this week, conscious their high-risk industry is approaching a turning point.
China's biggest aviation event - Airshow China - starts in Zhuhai tomorrow. A defense trade show will also take place in Jakarta and an air finance conference in Hong Kong, as well as the annual U.S. business jet jamboree in Orlando, Florida.