Wabtec, AGCO among downgrades as Morgan Stanley assesses recession risk in machinery

Wabtec Corporation building in Pittsburgh, Pennsylvania, USA.

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AGCO Corp. (NYSE:AGCO) and Westinghouse Air Brake Technologies Corporation (NYSE:WAB) saw ratings reeled in by Morgan Stanley as the bank outlined recessionary scenarios.

In a broad research note cutting estimates across the machinery and construction sector, equity analyst Dillon Cumming indicated that “peak pain” could significantly temper growth prospects across 14 names in his coverage. While this largely took the form of price target, both AGCO Corp. (AGCO) and Wabtec (WAB) were downgraded from "Overweight" to "Equal Weight" alongside a pulled-in price target.

“Our downgrades of both AGCO and WAB to [Equal Weight] are primarily driven by a reduction in exposure to the consumer complex, Europe, and a potentially peaking commodity backdrop, all of which are expected to moderate in a more draconian macro/recession scenario,” he explained. “While we are not explicitly negative on either name and are in fact modestly above consensus on EPS for '22, we see fewer catalysts for estimate upside in '23 for both names.”

Elsewhere, Cumming resumed his coverage of Cummins Inc. (CMI) after a period of suspended coverage. Following the acquisition of Melitor (MTOR), he advised that “long-term headwinds from ZEV penetration paired off by near-to-medium term market share gains on diesel engine platforms.” As such, the stock was assigned Neutral-equivalent rating alongside AGCO Corp. (AGCO) and Wabtec (WAB).

Rounding out ratings reassessments, Willscot Mobile Mini Holdings Corp (WSC) was cited as a top pick as “most insulated in a potential recession scenario”, with Deere & Company (DE) following closely after. Caterpillar (CAT), by contrast, was rated as the strongest-conviction “Sell” by Cumming as he expects waning demand and increased pressure on margins as the cycle turns.

Read more on Caterpillar’s recent decision to move its headquarters.

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