Oppenheimer: Aclara Acquisition, Taxes Brighten Hubbell Inc.'s Outlook

Hubbell Incorporated HUBB received a Wall Street upgrade this week on the basis of performance in the electrical segment, the federal tax cut and other positive catalysts. 

The Analyst

Oppenheimer analyst Christopher Glynn upgraded shares of Hubbell from Perform to Outperform with a 12-18-month price target of $160.

The Thesis

Hubbell has seen a recent improvement in operating performance in electrical and has capitalized on an "improving macro backdrop," Glynn said in a Thursday note. (See the analyst's track record here.) 

The company is also poised to benefit from the U.S. tax cut and the pending close of its Aclara acquisition — Hubbell's "largest deal ever," Glynn said. 

The electrical segment saw the first operating margin expansion in the third quarter of 2017 since the first quarter of 2014, Glynn said. The analyst said he expects Hubbell to benefit in 2018 from lower restructuring costs, plus program payback of about 25-30 cents combined.

Oppenheimer's 13-percent estimate for EPS growth in 2018 "looks well underwritten," Glynn said. 

Oppenheimer doesn't project concerns with the lighting segment — which accounts for 25 percent of Hubbell's revenue — as a direct result of Acuity Brands, Inc. AYI's revenue shortfall and related operating margin pressure. " ... AYI's softness definitely reflected idiosyncratic international pockets and shelf-space disruptions in the home center channel," Glynn said. 

Though delaying a model adjustment until Hubbell reports fourth-quarter results, Glynn said that Oppenheimer expects Aclara to add $50 million to the company's 2019 free cash flow. The federal tax cut is expected to add about $40 million to 2019 FCF, Glynn said. 

The Price Action

Hubbell shares are up over 14 percent over the past year.

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