MP Increase on Impressive Residential Growth, Helps Beat Expectations
We are increased our Model Portfolio holding on Trane Technologies Plc's (TT) recent Q2FY20 earnings, which came in above consensus estimates due to a substantial rise in Residential HVAC bookings. The stock has already given a +28% return since entering the MP and has surpassed our Base case target price since entering the Model Portfolio, and we continue to see long-term value for investors. For more, read on.Impressive Residential Growth Assists in Beating Consensus Expectations…
Trane Technologies Plc (TT) announced its Q2FY20 earnings on July 29, 2020, pre-market. It reported quarter revenues of $3,139m (above the consensus estimate of $2,786m and The Edge’s projection of $2,664m) and Adjusted EPS of $1.27 (higher than the consensus estimate of $0.76). The company highlighted a substantial rise in Residential HVAC bookings in the Americas as the quarter saw record backlog level entering Q3. Price/cost has remained a tailwind for the company despite the volume decline in Q2 and the company continues to accelerate actions to eliminate stranded costs (which resulted in solid margin performance in the quarter). Better visibility of the current environment means TT has presented a scenario with expected FY20 revenues down by 10%-15%, compared to the previous 15%-25% scenario presented in the Q1FY20 earnings release.
The Edge View...
Having achieved our Base case target price of $106.33 (currently trading around $114), our valuation model is being updated. We continue to see TT as one of the premier players in its industry with a strong aftermarket sales position, considering COVID-19 hit its commercial/transport HVAC business and this was offset by the stable residential HVAC business (performing better than expected). We recommend investors to remain invested for further upside, where we see the stock will continue its upward trajectory once the lockdown eases.
The Edge Group - Global Fundamental Catalyst Investing. The Edge provides investors with access to hidden corporate value from Global Special Situations using a pioneering approach to investments. Founded in 2005 by fund management and investment banking professionals to provide high quality, private equity-level research on Global Corporate Divestitures for the benefit of fundamental event-driven, growth and value-oriented investors in this difficult to track, but proven investment space.
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