電力設(shè)備與多產(chǎn)業(yè)Q4盈利預(yù)測(cè)

1、EE/MI4Q18 Earnings PregameNorth America Equity Research15 January 2019We expect a mixed 4Q, with a negative bias on earnings revisions driven by increasingly mixed global macro and end market trends, as well as potential tariff- related headwinds, though the world is still good enough for some diffe

2、rentiation. Following a significant sell-off at the end of the year, stocks should have screened as more attractive, but a look at both absolute and relative valuations shows a sector that we see as essentially fairly valued on an absolute basis and moderately expensive judged against the market, pa

3、rticularly if recent ISM/PMIs are sustained, and based on which we are lowering our target multiple. Our recommended longs into the quarter are those (HON/EMR) where we see potential for a solid print, with above-average visibility into 2019 earnings/FCF, and where recent stock weakness has been exa

4、cerbated by the downdraft in oil prices (“immunity vs commodity” trade has moved back to 2014/2015 wides), while we would avoid those (MMM/ROK/JCI) where we see potential for misses, and where there is increasing near-term uncertainty driven by either a mixed company-specific end market backdrop and

5、/or dilutive portfolio actions. On GE, after significant outperformance over the past month, we view risk/reward as unattractive into the print, as the focus turns back to fundamentals, where we continue to expect a material reset, and with balance sheet solutions dependent on SOTP math in a world o

6、f deflating asset values. We are also hosting a pregame conference call today with our global cap goods colleagues at 10am ET.Expecting mixed 4Q results. Despite being down 10-15% since last reporting season, the sector has performed about in line with the market, and the relative multiple, while we

7、ll off the early 2018 highs, looks unattractive if recent weak short cycle indicators are sustained (ISM orders near 50), in our view. Therefore, we believe fundamental fact finding on December and YTD trends will be key during earnings, and really through the course of 1Q. On this front, we expect

8、mixed results in the quarter, with continued solid organic growth but likely some moderation as the year closed and initial 2019 commentary also pointing to moderating but still solid growth in the 4% area, with some likely divergence for some companies based on end market and regional exposures for

9、 example, “sell China exposure” is too simplified an approach.2019 outlooks likely impacted by slowing global macro backdrop and uneven end market fundamentals. With macro indicators pointing to a slowing growth environment from a year ago, we expect organic growth guidance by the majority of our na

10、mes to be in the L-MSD range, with the most risk for those levered to short cycle trends (ISM/PMIs) and exposure to softening geographies (China, Europe) and end markets. There is rife debate on oil/gas, which is seemingly being treated as the only certain downside end market as per the divergence i

11、n performance at companies with the most exposure and we remind investors that WTI remained $70 for 2,500+ days in the many years of the boom leading up to the 2014 collapse, and most recently that level had only been sustained for 1-2 months the point is that a move back to $50, about average for t

12、he most recent cycle from a brief peak of $70, is aElectrical Equipment & Multi- IndustryC. Stephen Tusa, Jr CFA AC (1-212) 622-6623 HYPERLINK mailto:stephen.tusa stephen.tusa Bloomberg JPMA TUSA J.P. Morgan Securities LLCPatrick M. Baumann, CFA(1-212) 622-0160 HYPERLINK mailto:patrick.m.baumann pat

13、rick.m.baumannJ.P. Morgan Securities LLCLawrence M Stavitski(1-212) 622-0091 HYPERLINK mailto:lawrence.stavitski lawrence.stavitskiJ.P. Morgan Securities LLCNicole Q Cai(1-212) 622-1050 HYPERLINK mailto:nicole.cai nicole.caiJ.P. Morgan Securities LLCAbhipsa Sahu(91-22) 6157-4230 HYPERLINK mailto:abh

14、ipsa.sahu abhipsa.sahuJ.P. Morgan India Private LimitedSee page 114 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm

15、 may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / materially different situation from the step change in investment mindset driven by a move from $100+ to $

16、30. Meanwhile, tariff impacts, primarily from a margin perspective, have been a key watch item over the past year, though the bigger issue, and still somewhat of a TBD, in our view, is the impact on economic and business sentiment and potential differentiation in US vs international growth, starting

17、 to show up in softer economic data. We think companies with the best end market fundamentals are HON (stable downstream O&G dynamics; continued Aero strength; material handling automation) and EMR (downstream O&G and increased MRO spend; refining/chemicals/LNG process demand), while companies most

18、exposed to weakening end market dynamics are MMM (auto; electronics; Europe) and ROK (auto; semis; China). On average, we think EPS guidance ranges will likely put standing consensus toward the high end, as companies take a more conservative view on fundamentals and reset expectations for the year.L

19、owering sector target multiple, updated risk/reward shows stocks fairly valued. With ISM correcting from the highs and as we struggle to find catalysts for a leg higher in fundamentals we continue to believe we are late in the cycle and are adjusting our sector target multiple with the market, follo

20、wing the recent downdraft. Our year-end 2019 target prices are now based on a forward P/E multiple of 16x, a 5% premium to the standing S&P FY1 multiple, vs 18x prior (5-10% premium). Our target prices are correspondingly cut by about 10% on average, and currently show 5-10% upside (x-GE), while loo

21、king at risk/reward, incorporating both potential upside (primarily balance sheet related), as well as downside recession scenarios, for which we have upped our probability of recession from 27% to 35%, we see the stocks as about fairly valued.Longs into the quarter: HON, EMR. On HON we expect a str

22、ong relative quarter with 4Q EPS at the high end of managements guide, though 2019 guidance will be the main event and here we expect the high end to be above consensus but with underlying assumptions that suggest conservatism and room for upside (i.e. we think the Street reset post spins has oversh

23、ot to the downside). We expect sector+ organic growth trends to continue, with solid long cycle orders providing visibility, while improved FCF conversion, a higher quality portfolio post spins, and best-in-class balance sheet (optionality), and a stubborn EV/FCF discount, all combine to make us lon

24、g into the quarter. For EMR, we expect F1Q EPS at the high end of guidance, with 2019 reaffirmed, showing top tier fundamental trends intact on the back of strength in Automation. With the “immunity vs commodity” trade back to 2014/2015 wides, we are not “chasing safety”, as we do not see this as a

25、re-run of 2014 (oil price deck expectations are nowhere near where they were back then), while balance sheet is a resource to offset oil-related fundamental weakness if prices take a further step down.Avoids into the quarter: JCI, MMM, ROK. For MMM, we are below the Street for 4Q and below the low e

26、nd of 2019 guidance, as we expect sluggish organic sales on weakening global growth (China/Europe slowing) and company-specific end market challenges (particularly auto and electronics, while healthcare and consumer have also seen greater than expected slowing this year). While we see a challenging

27、scenario where guidance that calls for stable growth from 2018 looks aggressive in the context of slowing global growth, provided a couple months back when headwinds were not as apparent, its2unclear if a management that was late to acknowledge earnings risk last year will act this early in the year

28、 to change its outlook. Either way, with valuation still unattractive at a 10-15% premium on EBITDA and FCF, we remain negative on undifferentiated and low-quality organic growth and exposure to short-cycle macro (global slowdown and inflation), and we dont expect this quarter to behave differently.

29、 For ROK, we expect a miss (in line with management commentary for no growth in F1Q), and see increased risk around its end market exposures with read-thrus from global automation companies showing that the slowdown in China has meaningfully impacted demand in some areas (auto and electronics). Euro

30、pe should remain weak and the ISM new orders print in the US is a potential red flag as well, with ROK being among the most short cycle levered names in the group. We do not expect any material changes to guidance after only one quarter, though if F1Q is in line with our estimate this would make the

31、 high end on organic look unrealistic with an increasingly challenged macro picture. For JCI, we expect a miss and see guidance settling out well below the hypothetical $2.40-2.50 range, and would avoid into the quarter. IR remains our preferred, higher quality (and cheaper) HVAC play.GE: risk/rewar

32、d unfavorable into 4Q earnings following recent run. GE stock has bounced over the last month, outperforming the group by 3000bps. While we understand the year-end dynamic around buying laggards and hope for change, as asset values deflate, those dependent on an SOTP story to actually de-lever (not

33、to unlock value), and which dont have cash to exploit lower prices, should lag, in our view, and we view risk/reward as unfavorable with the stock back above $8. We believe the focus on the call should turn back to fundamentals, where we continue to see disconnect with high level analyses from those

34、 who apparently ignore the mechanical headwinds from dilutive asset sales, a key aspect as to why FCF remains so weak (we are at $2.5B for 2019E vs many we have seen at $4B). Our base case is that (1) concrete/tangible news on numbers, from both fundamentals and portfolio moves, will support our wel

35、l below consensus view of whats left, a negative, and (2) if we dont get much tangible, Bulls can still debate with their own numbers, but we believe it will reinforce the Bear case that there is no concrete silver bullet plan, and much remains fluid, also negative. The bottom line is we think the r

36、ecent stock move is built upon an expectation of more certainty in the path forward.3Equity Ratings and Price TargetsCompanyTickerMkt Cap ($ mn)Price ($) Rat Curing PrevCur Price TEnd Datearget PrevEnd Date3MMMM US117,747.40192.17UWn/c158.00Dec-19n/cn/cEmerson Electric Co.EMR US39,191.6661.69OWn/c76

37、.00Dec-1987.00Dec-19DoverDOV US11,843.1478.06Nn/c79.00Dec-1982.00Dec-19AtkoreATKR US1,441.5021.91Nn/c25.00Dec-1929.00Dec-19Evoqua Water TechnologiesAQUA US1,114.929.78Nn/c10.00Dec-1911.00Dec-19FastenalFAST US15,637.0454.07Nn/c55.00Dec-1962.00Dec-19Fortive Corp.FTV US24,915.3669.63NRn/cGeneral Electr

38、ic Co.GE US77,964.008.90Nn/c6.00Dec-19n/cn/cHD SupplyHDS US7,676.0737.81OWn/c45.00Dec-1950.00Dec-19HoneywellHON US106,510.10137.61OWn/c161.00Dec-19176.00Dec-19Hubbell Inc.HUBB US5,760.32104.81OWn/c124.00Dec-19140.00Dec-19Ingersoll RandIR US23,738.3495.06OWn/c109.00Dec-19121.00Dec-19John Bean Technol

39、ogiesJBT US2,472.5777.51UWn/c80.00Dec-1992.00Dec-19Johnson ControlsJCI US30,427.8032.37UWn/c30.00Dec-1935.00Dec-19Lennox InternationalLII US11,337.51224.15Nn/c209.00Dec-19234.00Dec-19MSC Industrial DirectMSM US4,837.9279.43Nn/c86.00Dec-1992.00Dec-19Pentair PLCPNR US7,184.6140.38OWn/c45.00Dec-1951.00

40、Dec-19Rockwell AutomationROK US22,008.58156.20Nn/c160.00Dec-19185.00Dec-19Roper TechnologiesROP US28,339.37271.32Nn/c284.00Dec-19313.00Dec-19United TechnologiesUTX US98,689.76110.85NRn/cn/cn/cWatscoWSO US4,609.91142.91UWn/c140.00Dec-19156.00Dec-19Wesco InternationalWCC US2,261.8750.84Nn/c61.00Dec-19

41、73.00Dec-19WW GraingerGWW US16,993.77281.21Nn/c307.00Dec-19353.00Dec-19Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 14 Jan 19.4Table of Contents HYPERLINK l _bookmark0 Our Take On The Recent Pullback: An Adjustment, Not HYPERLINK l _bookmark0 Necessarily

42、An “Opportunity”7 HYPERLINK l _bookmark1 The Recent Pullback in Context of the Peak of the Last Cycle8 HYPERLINK l _bookmark2 Macro Backdrop13 HYPERLINK l _bookmark3 End Market Update21 HYPERLINK l _bookmark4 P/E Valuation Deep Dive21 HYPERLINK l _bookmark5 Risk-Reward Update28 HYPERLINK l _bookmark

43、6 EE/MI 4Q18 Earnings Pregame30 HYPERLINK l _bookmark7 Summary 4Q and 2019 Estimates30 HYPERLINK l _bookmark8 Earnings Previews35 HYPERLINK l _bookmark9 Dover (N)35 HYPERLINK l _bookmark10 Honeywell (OW)37 HYPERLINK l _bookmark11 Lennox (N)39 HYPERLINK l _bookmark12 United Tech (NR)40 HYPERLINK l _b

44、ookmark13 3M (UW)41 HYPERLINK l _bookmark14 Watsco (UW)43 HYPERLINK l _bookmark15 Hubbell (OW)44 HYPERLINK l _bookmark16 Pentair (OW)45 HYPERLINK l _bookmark17 IR (OW)46 HYPERLINK l _bookmark18 IR (OW)47 HYPERLINK l _bookmark19 General Electric (N)48 HYPERLINK l _bookmark20 Fortive (NR)51 HYPERLINK

45、l _bookmark21 Roper (N)52 HYPERLINK l _bookmark22 John Bean (UW)53 HYPERLINK l _bookmark23 Wesco (N)54 HYPERLINK l _bookmark24 Emerson (OW)55 HYPERLINK l _bookmark25 Rockwell (N)56 HYPERLINK l _bookmark26 Johnson Controls (UW)57 HYPERLINK l _bookmark27 Atkore (N)58 HYPERLINK l _bookmark28 Evoqua (N)

46、59 HYPERLINK l _bookmark29 NN, Inc. (OW)605 HYPERLINK l _bookmark30 3M61 HYPERLINK l _bookmark31 Emerson Electric Co.63 HYPERLINK l _bookmark32 Dover65 HYPERLINK l _bookmark33 Atkore67 HYPERLINK l _bookmark34 Evoqua Water Technologies70 HYPERLINK l _bookmark35 Fastenal73 HYPERLINK l _bookmark36 Fort

47、ive Corp.75 HYPERLINK l _bookmark37 General Electric Co.77 HYPERLINK l _bookmark38 HD Supply80 HYPERLINK l _bookmark39 Honeywell82 HYPERLINK l _bookmark40 Hubbell Inc.84 HYPERLINK l _bookmark41 Ingersoll Rand86 HYPERLINK l _bookmark42 John Bean Technologies89 HYPERLINK l _bookmark43 Johnson Controls

48、91 HYPERLINK l _bookmark44 Lennox International93 HYPERLINK l _bookmark45 MSC Industrial Direct95 HYPERLINK l _bookmark46 Pentair PLC98 HYPERLINK l _bookmark47 Rockwell Automation100 HYPERLINK l _bookmark48 Roper Technologies103 HYPERLINK l _bookmark49 United Technologies105 HYPERLINK l _bookmark50

49、Watsco107 HYPERLINK l _bookmark51 Wesco International109 HYPERLINK l _bookmark52 WW Grainger1116Our Take On The Recent Pullback: An Adjustment, Not Necessarily An “Opportunity”The draw down in the sector was dramatic towards the end of the 4Q, and investors are searching for bargains. However, a loo

50、k at both absolute and relative valuations shows that the sector at large is essentially fairly valued on an absolute basis and actually moderately expensive judged against the market. In other words, the sector, at close to 20 x last Spring, was downright expensive. To be clear, the 20% pullback wa

51、s one of the most dramatic we have seen since the 2014 oil/gas downturn, but, in our view, represents a continuation of a recognition that, in an increasingly complex world, benefits from a more simplified tax structure are not a silver bullet to unlocking capex, and offset by significant uncertaint

52、y in the supply chain (tariffs), leading to a slowing in activity on risk that consumers/CEOs re-evaluate their risk- appetite. Indeed, at this time last year, the story was “synchronized growth” and 20 x EPS was the entitlement, while today it is arguably “synchronized slowing”. With the synchroniz

53、ed recovery looking more like a synchronized slowing, the move in 4Q was essentially a marking to a more normal multiple for this point in the cycle.With ISM correcting from the highs and as we struggle for catalysts for a leg higher in fundamentals we continue to believe we are late on the cycle an

54、d are adjusting our sector target multiple with the market.Figure 1: PMI Indices Correct from Highs59.159.654.152.850.351.462605856545250484644Source: ISM, MarkitUSChinaEurope Jan-18Dec-18Figure 2: Group FY1 and FY2 Multiples25x25x20 x20 x15x15x10 x10 xJan-04 Aug-04 Mar-05 Oct-05 May-06 Dec-06 Jul-0

55、7 Feb-08 Sep-08 Apr-09 Nov-09 Jun-10 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18Aug-1805x05xPEFY2Group TargetPEFY1Source: Bloomberg and JPMorgan estimates7Figure 3: Group FY1 Multiples Relative to S&P 500130%120%110%100%90%80%Jan-19Jan-18Jan-17Jan-16Jan

56、-15Jan-14Jan-13Jan-12Jan-11Jan-10Jan-09Jan-08Jan-0770%FY1Group TargetSource: Bloomberg and JPMorgan estimatesThe Recent Pullback in Context of the Peak of the Last CycleIf consensus is wrong, it is useful to recall and have in mind how things played out last cycle from a timing perspective for the s

57、tocks. The average peak FY2 multiple was 16.6 in Oct. 07, the month prior to the 5%+ earnings revisions, the average multiple was 10.8 (Oct. 08); then went to 9.5 in Nov 08 and troughed at 9.2 in December of 08. Multiple contraction, however on average, started in Nov 07.Stocks that began to see mul

58、tiple contraction earlier than group average were DOV, HON , ROK, TYC (kept TYC in as proxy for JCI) and PNR, where all started seeing multiple contraction around August 07 timeframe; DHR lagged here, with multiple contraction starting in Jan 08. On average for the group, FY2 EPS revisions of 5%+ st

59、arted in Nov 08, with an early revision at GE (revisions started in May 08 but that was somewhat company specific with GECS) and ROK (revisions started in Aug 08); slight laggards to EPS revisions were DHR, EMR, HON, MMM (revisions in Dec 08) and UTX (Jan 09).Fundamentally, there are major differenc

60、es this time versus lastIts important to maintain context around what is different or the same this time versus last. Most importantly, in the US, the consumer and banks are in good shape, and its hard to find end markets that are extended (construction is not extended esp if rates stay low). Howeve