Caris & Co. analyst Mary Ann Sudol says industrial companies can continue to perform well, helped in part by a U.S. economy that remains on solid footing.
In reiterating her positive stance on the industrial capital goods and commercial aerospace sectors, Sudol said the strong growth in new durable goods orders recently reported bodes well for an extended expansion in revenue growth for the companies in these sectors. She also pointed to comments from the Federal Reserve Thursday - while the central bank lifted rates for the 17th consecutive time, the Fed also said “productivity gains have held down the rise in unit labor costs, and inflation expectations remain contained,” suggesting an end may be near to the Fed’s tightening campaign.
Continued strength in China and India, along with signs of recoveries in Japan and Germany, also leave industrial companies well positioned, she said.
Meanwhile, commercial aerospace companies continue to benefit from Boeing’s growing order book, which is still outpacing deliveries, she said. Sudol said that through June 27, Boeing booked firm orders for 455 aircraft, against the 395 it expects to deliver this year.
Boeing’s key suppliers, such as Rockwell Collins, General Electric, Honeywell, Ladish, and Eaton, “should continue to benefit from an extended expansion as passenger and cargo traffic rise along with higher incomes and trade volumes from the expanded transactions in an increasingly integrated world economy,” the analyst said.
On the energy front, higher prices are turning into opportunities for companies that can offer their customers energy savings and productivity gains to offset cost pressures.
“In particular, Rockwell Automation continues to grow its top line in factory automation as its customers contain their costs and improve quality,” Sudol said. “Eaton is benefiting from expanded non-residential construction, offering customers savings in power management.”
As a group, she said the shares of these companies are reasonably priced in light of what she sees as under-appreciated growth prospects.