SKF's Rally Into 2023 Seems Overdone

Summary

• Like many industrial stocks, SKF saw its shares rally strongly in the last three months of 2022 on expectations of a more mild downturn in 2023.
• I'm expecting a more meaningful downturn in short-cycle industrial end markets, and I think SKF may see greater price/cost pressure from limited incremental pricing power and stubborn costs.
• Autos should be a relatively healthy end market, and both aerospace and wind look good, but general industrial (mostly short cycle) is at risk given weak macro readings.
• SKF shares don't look particularly overvalued now on my below-Street modeling assumptions, but I'm concerned about near-term sentiment risk from a tougher earnings reporting cycle.

Sashkinw

Industrials have certainly recovered of late. With investors feeling more confident that the impending downturn will be mild and that rate hikes are close to an end, the industrials have climbed about 20% over the last three months, and Sweden’s

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