Morgan Stanley Starts Coverage Of Electrical, Multi-Industry Stocks Threatened By Tech Advances

Morgan Stanley highlighted technology’s persistent threat to the industrial cycle, as well as the demand for capital goods within the electrical equipment industry, in a broad intiation of electrical equipment and multi-industry stocks Tuesday. 

“These violent delights have violent ends,” the firm's analysts said. 

The Analysts

Analysts from Morgan Stanley initiated coverage of 14 electrical equipment and multi-industry stocks and assumed coverage of three. 

The Thesis

Advancements are driving the efficiencies that raise the threshold for capital equipment purchases, thereby flattening the industrial cycle, according to Morgan Stanley. 

The sector is marked by "shrinking barriers to entry in fast-growing niches in industrial technology and software,” the note said. “We believe this makes revenue growth more important in a sector that has prioritized margin expansion since the Great Recession.”

The cycle is maturing, according to Morgan Stanley, which is out tactically positive in the near-term for the majority of the group. 

Overweight

• Honeywell International Inc. HON: Morgan Stanley said the company is a solid balance of upside potential and secular performance using an emerging software platform.

Price Target: $175.

• Emerson Electric Co. EMR: EMR should demonstrate outsized benefit from productivity spending and cyclical momentum, according to Morgan Stanley. 

Price Target: $85.

• Stanley Black & Decker, Inc. SWK: SWK is a prime example of an effective market outgrowth with internal investments, the analysts said. 

Price target lifted from $161 to $164. 

• Ingersoll-Rand PLC. IR: IR represents a mix of value, lower volatility and upside margin execution, according to Morgan Stanley. 

Price Target: $111.

• Hubbell Incorporated HUBB: HUBB’s cost challenges are improving, as is the company’s "structural upgrade to growth" after the purchase of Aclara Technologies. 

Price target lowered from $136 to $133. 

Morgan Stanley assigned Equal-weight valuations to companies such as Parker-Hannifin Corp. PH, Johnson Controls JCI, Allegion PLC ALLE and Colfax Corp. CFX.

Underweight

• Lennox International Inc. LII: Morgan Stanley analysts consider LII’s business fundamentals to be in the later stages and its valuation to be "less favorable." 

Price Target: $201.

• Rockwell Automation ROK: ROK’s markets have lost some outgrowth potential, as certain headwinds limit the company’s ability to grow in software verticals, according to Morgan Stanley. The stock was downgraded from Equal-weight and its price target was lowered from $192 to $163. 

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