Sector Shifts: Bank of America Analyst Forecasts Challenging 2024 for Machinery, Downgrades Cummins and GFL, Upgrades PACCAR

BofA Securities analyst Michael Feniger changed the rating of several machinery, E&C, and waste management companies.

The analyst expects the EPS beats to be tougher to happen in 2024 owing to slow backlogs, moderating pricing, and inventory challenges in the machinery sector.

Nevertheless, Feniger writes that investors are not likely to fully underwrite lower backlogs in 2025 if indicators are gradually improving and the Fed starts to reduce rates. 

Overall, the analyst says that consensus forecasts flat to negative EPS growth for the cyclical machinery sector in 2024, broadly in line with his views, with an expected tightening cycle pressuring demand and earnings, less support for the average price increase, plateauing capex and decelerating global GDP in the first half.

Also, the analyst writes that BofA expects the Fed to start cutting rates by 25bps per quarter in June until it reaches a terminal rate of 3% in 2026, which may eventually lead to a market revival.

For Oil & Gas sector, BofA forecasts global D&C capex growth of +3% in 2024, with huge weakness in North America (-6%) vs. strong international (+12%).

For Rental Equipment sector, Feniger projects capex to remain high in 2024, with the cycle reaching its peak and growth beyond 2024 likely to be limited.

Consequently, the analyst downgraded GFL Environmental Inc GFL to Neutral (from Buy) at a price target of $35 and Cummins Inc CMI to Underperform from Neutral at a lowered price target of $225 (from $243).

Also Read: Why This Cummins Analyst Is Downshifting On The Stock

On the other hand, Feniger raised PACCAR Inc PCAR rating to Neutral from Underperform at an increased price target of $97 (from $84).

The analyst expects truck production to fall 20% to 272K units in FY24, on a decline in capex, lower ordering activity, fleet age normalizing, weak freight conditions, and declining used values.

The analyst anticipates the impact of this downturn to be more reflected in consensus for PACCAR than Cummins. 

Also, Feniger downgraded Terex Corp TEX to Underperform (from Neutral) with a price target of $57.

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