BofA Issues 2 Industrial Upgrades, 2 Downgrades As Coronavirus Narrative Shifts

Encouraging news on the Pfizer Inc. PFE coronavirus vaccine candidate has changed the narrative related to the global pandemic, and BofA Securities said Wednesday that it has changed the investment theses for a handful of industrial stocks as well.

The Industrials Analyst: Andrew Obin issued the following industrial stock ratings changes:

• Eaton Corporation PLC ETN upgraded from Neutral to Buy, price target raised from $125 to $135.
• Allegion PLC ALLE upgraded from Neutral to Buy, price target raised from $118 to $128.
• Trane Technologies PLC TT downgraded from Buy to Underperform, price target reiterated at $155.
• Pentair PLC PNR downgraded from Buy to Underperform, price target reiterated at $58.

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The Industrials Thesis: It will take some time for industrial production to return to pre-pandemic levels, but now is the time to start investing in a rebound, Obin said in a Wednesday note. 

“We believe multi-industrials investors will shift capital from COVID beneficiaries to stocks with the potential to benefit from a return to normal,” the analyst said.

Seventy-five percent of Eaton’s end markets are already up compared to a year ago, and the vaccine progress is bullish for Eaton’s aerospace business, he said.

A lackluster non-residential construction market has weighed on Allegion in 2020, but Obin said those trends should improve significantly in coming quarters given the close correlation between GDP growth and non-residential construction.

At the same time, the tailwind social distancing created for Trane’s HVAC business may soon be running out of steam, the analyst said.

The same can be said for Pentair’s pool business, which he said has been a major beneficiary of the stay-at-home environment.

Benzinga’s Take: The same shift from social distancing stocks to “return to normalcy” stocks has been playing out in different sectors throughout the market, and the industrial sector is no exception.

The key question for investors moving forward is when — and if —individual businesses will recover to their pre-pandemic levels.