US Multi-Industry: Q117 Better than Q416 - But How Much ?

13 April 2017 08:00 BST
Industry Note | Industry Update
Multi-Industry
 
Multi-Industry - US Multi-Industry: Q117 Better than Q416 - But How Much ?
 


We believe the market is expecting Q117 EPS results to exceed sell-side consensus. The question is how much, and what scope there is for upgrades to FY17/18 consensus/guidance. We expect to see accelerating organic revenue/EPS growth through FY17, which is already reflected in sell-side expectations/company guidance. The question is whether the pace of demand improvement is sufficient to uphold market expectations that arguably anticipates measurable upside. While we see the potential for modest organic revenue/EPS upside in Q117, we do not anticipate meaningful upward revisions to FY17 guidance at this stage.


For our MI coverage we see organic revenue growth accelerating to ~1% YoY in Q117 from (1%) YoY in Q416. Our FY17 estimates assume sustained acceleration to ~4% YoY in Q417, consistent with sell-side consensus/guidance. However, we believe that improvement in macro data points (ie. ISMs) in recent months was necessary to support standing consensus estimates, and will need to be sustained to fuel meaningful upside to EPS expectations. However, this may now require clarity on the magnitude of policy actions from the new administration to augment better corporate sentiment already reflected in confidence measures.


Heading into Q117 we see relatively high expectations for CAT, EMR and ETN. We sense that the market is expecting measurable Q117 upside for CAT and possibly raised guidance, but see that as already reflected in the valuation. Having raised FY17 EPS guidance with Q117 (Dec) we think expectations remain relatively higher for EMR, while ETN's guidance has likely been increasingly viewed as too conservative.


Conversely, we believe sentiment is low with respect to JCI and ST. We believe that investors are questioning the ease at which JCI can deliver upon H2 guidance, although view this as being fully reflected in the valuation. While we expect ST to at least deliver upon expectations, concern over the trajectory of US auto production continues to weigh on sentiment.


Raising EPS estimates / PT for ETN - no change to Neutral rating. Having not revised our estimates with Q416 results, we are raising our FY17/18 EPS estimates to $4.46/4.96 (consensus = $4.45/4.91) from $4.40/4.80 to reflect the improvement in recent macro data points and potential for stronger demand in certain end-markets (ie. hydraulics). We have also raised our CY17 y/e PT to $77 from $67, although view the implied target PE of 15.5x as fair.






Richard Radbourne, Research Analyst
+44 20 7382 2913
[email protected]