电力设备与多产业：增加的EEMI数据点在刀刃上摇摇欲坠

1、Global Research11 December 2019Initiation of CoverageAmericasEquitiesElectrical Equipment & Multi-Industry Incremental EEMI data points teetering on a knife edge. Will early signs of better growth materialize?EEMI: Buy transformation stories, growth pockets and deal activityThe three characteristics

2、 that we see most likely to generate value in EEMI into 2020 are 1) transformations, 2) deal activity and 3) idiosyncratic growth drivers. These drive our Buy ratings on GE, IR and SWK. We think investors should avoid challenged business models and slowing end markets; hence our Sell ratings on 3M,

3、JCI and LII.We now cover 18 stocks with a wealth of proprietary data & analysesOur industry launch and company notes contain 1,000 pages, leveraging our proprietary Global Industrials Capex & Sector Growth Model based on inputs of 3,000+ companies covered by UBS analysts and a multitude of other sou

4、rces: UBS Evidence Lab, industry experts, survey data from 500 executives, as well as employee and investor sentiment analyses and so on. Our work includes proprietary analyses on key end markets (HVAC End Market Note: link) and on special situations around environmental litigation affecting some co

5、mpanies (3M (link), JCI (link) in the sector (PFAS Investor Guide).LSD organic growth in 2020, driven by industrial production and minimal capex Sector growth is driven by IP and capex. For 2020 we expect growth of 2.5% (H2 better than H1) vs cons 2%, almost entirely driven by IP. We already see inc

6、remental growth deterioration ending and inventory adjusting from elevated levels in EMEA & APAC whilst the US remains a weak spot as sales momentum continued down in Q3 and inventory levels remain elevated. This may need to be digested before we consider turning more positive, given EEMIs average 5

7、0%+ U.S. sales exposure.Incremental datapoints on a knife edge suggest better growth in H2 2020Early signs of growth have started to turn upward, but it is unclear if this is sustainable. Leading indicators recently inflected positively for the first time since 1Q18, which typically leads relative s

8、ector performance by 6 months. However, we wait to see if this is temporary or if it shows up in hard data (IP, capex) to consider becoming more constructive. Expectations for the sector have largely adjusted to more moderate growth, with consensus earnings momentum collapsing in H2 2019 and relativ

9、e NTM P/E now 1 SDEV below the LT average. If incremental data continues its trend, we see the potential for a rotation towards more cyclical exposure into H2 and an overall relative sector re-rating.Figure 1: EEMI Coverage Pecking OrderIndustrialMarkus MittermaierAnalyst HYPERLINK mailto:markus.mit

10、termaier markus.mittermaier+1-212-713 2716Damian Karas, CFAAnalyst HYPERLINK mailto:damian.karas damian.karas+1-212-713 2267Neal Burk Associate Analyst HYPERLINK mailto:neal.burk neal.burk+1-212-713 4066Nicholas Amicucci, CFA, CPAAssociate Analyst HYPERLINK mailto:nicholas.amicucci nicholas.amicucci

11、+1-212-882 5036CurrentUBS PriceUpside /RatingTickerCompanyPriceTargetDownsideBuyGEGeneral Electric$11$1427%BuyCRCrane$86$10016%NeutralGTESGates$13$1411%NeutralGDIGardner Denver$34$379%NeutralETNEaton$93$986%NeutralEMREmerson Electric$75$784%NeutralITTITT$71$722%SellJCIJohnson Controls$42$40(5%)SellL

12、IILennox$261$235(10%)Source: Factset, UBS estimates and analysis; Pricing as of 12-09-19 HYPERLINK /investmentresearch /investmentresearchThis report has been prepared by UBS Securities LLC. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 83. UBS does and seeks to do business with compa

13、nies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider thisContents HYPERLINK l _TOC_250028 Recommendations overview: What to own and what to sell4Pivotal Q

14、uestion 1: Will the EEMI sector grow in 2020?7 HYPERLINK l _TOC_250027 Can IP drive sector growth?9 HYPERLINK l _TOC_250026 Inventory may need to be digested before we become more positive on sector performance10 HYPERLINK l _TOC_250025 Wholesaler inventory levels are notably high11 HYPERLINK l _TOC

15、_250024 Inventory to sales levels indicate a possible digestion period ahead12 HYPERLINK l _TOC_250023 State of the Industries13 HYPERLINK l _TOC_250022 Who can grow in this environment in 2020?13 HYPERLINK l _TOC_250021 Organic Growth by End Market Vertical17 HYPERLINK l _TOC_250020 End market orde

16、r growth20 HYPERLINK l _TOC_250019 Organic Revenue Growth22 HYPERLINK l _TOC_250018 Organic Orders Growth24Pivotal Question 2: Have earnings expectations adjusted to the tepid growth outlook?26 HYPERLINK l _TOC_250017 Sector performance vs leading indicator momentum27 HYPERLINK l _TOC_250016 Price v

17、s Cost: Net pricing has been strong what is the risk to margins if this turns?28 HYPERLINK l _TOC_250015 Pricing appears positive relative to input costs28 HYPERLINK l _TOC_250014 Capex Outlook31 HYPERLINK l _TOC_250013 Global capex recovery is losing steam31 HYPERLINK l _TOC_250012 Capex Driver 1:

18、Utilization not in sweet spot33 HYPERLINK l _TOC_250011 Capex Driver 2: Corporate Profitability34 HYPERLINK l _TOC_250010 Capex forecast by End Market and by Region36 HYPERLINK l _TOC_250009 Downside case: What happens to the sector if there is a recession?37 HYPERLINK l _TOC_250008 Which stocks ten

19、d to work when?41 HYPERLINK l _TOC_250007 EPS Consensus Evolution43 HYPERLINK l _TOC_250006 Valuation44 HYPERLINK l _TOC_250005 Where are we? YTD 2019 Review44 HYPERLINK l _TOC_250004 2020 Expectations48 HYPERLINK l _TOC_250003 What drives the sector?54 HYPERLINK l _TOC_250002 Are historical relativ

20、e valuations (vs. the broader market) still applicable?55 HYPERLINK l _TOC_250001 Capital Allocation56 HYPERLINK l _TOC_250000 Who creates value through M&A?56Markus MittermaierAnalyst HYPERLINK mailto:markus.mittermaier markus.mittermaier+1-212-713 2716Damian Karas, CFAAnalyst HYPERLINK mailto:dami

21、an.karas damian.karas+1-212-713 2267Neal Burk Associate Analyst HYPERLINK mailto:neal.burk neal.burk+1-212-713 4066Nicholas Amicucci, CFA, CPAAssociate Analyst HYPERLINK mailto:nicholas.amicucci nicholas.amicucci+1-212-882 5036Balance Sheet Capacities57R&D / internal investment58Dividends59End marke

22、t and regional exposure61End Market Data Section63Bottom up end market outlook63Country Macro Monitors64Inventory Turnover (EEMI)71EEMI Employee Reviews73Company Section75In a lacklustre environment for growth, stock-picking will be key 75APPENDIX76OECD Composite leading indicator76Consensus EPS Evo

23、lution78Valuation methodology80Initiation of Coverage: Electrical Equipment & Multi-Industry 11 December 2019 4Recommendations overview: What to own and what to sellFigure 2: We buy transformations (GE, IR) and are cautious on slowing end markets (JCI, LII) as well as companies with apparent challen

24、ges to the business model (MMM) 201920202021RatingTickerCompanyCovering AnalystCurrent PriceUBS Price TargetUpside / DownsideUBS EPSStreet EPS% Above/ Below StreetUBS EPSStreet EPS% Above/ Below StreetUBS EPSStreet EPS% Above/ Below StreetBuyGEGeneral ElectricMarkus Mittermaier$11$1427%$0.60$0.62(3%

25、)$0.67$0.69(2%)$0.87$0.835%BuySWKStanley Black & DeckerMarkus Mittermaier$159$20026%$8.44$8.410%$9.35$9.014%$10.58$10.026%BuyCRCraneDamian Karas$86$10016%$6.06$6.011%$6.67$6.453%$7.16$7.17(0%)BuyIRIngersoll-RandMarkus Mittermaier$131$15014%$6.39$6.40(0%)$7.32$6.955%$7.88$7.594%NeutralGTESGatesDamian

26、 Karas$13$1411%$0.87$0.93(6%)$0.90$0.92(2%)$1.07$1.07(0%)NeutralHONHoneywellMarkus Mittermaier$174$19210%$8.13$8.14(0%)$8.75$8.84(1%)$9.53$9.63(1%)NeutralGDIGardner DenverDamian Karas$34$379%$1.58$1.58(0%)$1.62$1.545%$1.70$1.74(2%)NeutralSITESiteOne Landscape SupplyDamian Karas$87$926%$1.73$1.88(8%)

27、$2.13$2.15(1%)$2.47$2.65(7%)NeutralETNEatonMarkus Mittermaier$93$986%$5.77$5.731%$5.79$5.92(2%)$6.17$6.35(3%)NeutralROKRockwell AutomationMarkus Mittermaier$199$2064%$8.68$8.670%$9.01$8.911%$9.53$9.441%NeutralEMREmerson ElectricMarkus Mittermaier$75$784%$3.68$3.69(0%)$3.65$3.640%$3.92$4.01(2%)Neutra

28、lCGNXCognexMarkus Mittermaier$50$524%$0.81$0.84(4%)$1.03$1.04(1%)$1.40$1.391%NeutralITTITTDamian Karas$71$722%$3.75$3.711%$3.98$4.00(0%)$4.16$4.31(4%)NeutralPNRPentairDamian Karas$45$42(7%)$2.36$2.350%$2.48$2.56(3%)$2.60$2.76(6%)SellJCIJohnson ControlsMarkus Mittermaier$42$40(5%)$1.96$1.96(0%)$2.54$

29、2.55(1%)$2.66$2.89(8%)SellMMM3M CompanyMarkus Mittermaier$170$160(6%)$9.01$9.06(1%)$9.15$9.68(5%)$9.38$10.37(9%)SellLIILennoxDamian Karas$261$235(10%)$11.37$11.271%$12.28$11.755%$12.23$12.87(5%)Note: Pricing as of 12-09-19Source: UBS estimates and analysis, FactsetFigure 3: US EEMI Coverage Upside/D

30、ownside% difference from current price to downside base case upside scenariosupside downside skewAs per UBS Rank-60%-40%-20%0%20%40%60%80%General Elect ric SWKCrane Co. Ingersoll-Rand Gates HoneywellGardner Denver Sit eOneEat on Corp. Rockw ell Emerson Elect ricCognex Corporat ion ITTPent air-45%-29

31、%-36%-30%-45%53%51%46%58%-17%-29%-36%-30%-26%-31%32%33%45%-50%-27%-27%32%33%24%34%20%27%73%1.61.81.41.51.31.81.11.31.11.31111to 1to 1to 1to 1to 1to 1to 1to 1to 1to 1to 1.3to 1.5to 1.3to 1Buy Buy Buy Buy Neut ral Neut ral Neut ral Neut ral Neut ral Neut ral Neut ral Neut ral Neut ral Neut ralInitiati

32、on of Coverage: Electrical Equipment & Multi-Industry 11 December 2019 5Johnson Cont rols-36%29%1to 1.3Sell3M-45%28%1to 1.6SellLennox-26%14%1to 1.9SellSource: UBS estimates and analysis, FactsetEVENT DATEWHAT WE EXPECTDEC 2019 UBS EEMI Sector InitiationKey Insights into End-Markets and Stock PicksHV

33、AC Deep Dive (link), PFAS Investor Guide (link), GE Initiation (link), SWK Initiation (link), IR Initiation (link), MMM Initiation (link), JCI Initiation (link), HON Initiation (link), ETN Initiation (link), ROK Initiation (link), EMR Initiation (link), CGNX Initiation (link)DEC 2019 Expert Calls on

34、:PFASWind PowerPower GenerationUS EconomyHealthcare Equip.Join us for calls with UBS and external expertsInvitations to follow.PFAS call: Tue, Dec 17th, 10AM.JAN 13-17 2020 Dinner with President & CEOof GE China &UBS Greater China Conference Industrials TrackMeeting 30 Industrials Companies in China

35、The UBS Global Industrials Team will be hosting a trip to China, providing Investors the opportunity to meet with30 Industrial companies in 3 days. We will also meet with GEs President and CEO in the region beforehand.To sign up please email HYPERLINK mailto:markus.mittermaier markus.mittermaierMAR

36、18, 2020 UBS Industrial TechConference (NYC)The Future of IndustrialsUBS will host a one-day conference focusing on industrial technologies that could shape the future of the sector. We will be joined by both public and private companies as well as experts. Separate invitation to follow.APR 2020 Aut

37、omation Fair Field TripHannover Messe: Trip to Hannover, GermanyUBS will host a trip to Hannover to meet with both public and private automation and software focused companiesJUNE 2/3, 2020 UBS Global IndustrialsConference, New YorkMarket Outlook and Company InsightsUBS will host its Global Industri

38、als Conference allowing investors to connect with over 30 management teams from both public and private companies.SEPT 2020 UBS QuoVadis IndustrialsEurope and much more to come.The view from across the PondWe will travel across Europe meeting 20 management teams of industrial companies over the cour

39、se of 5 daysWe would like to thank Pratap Singh, our research support service professional, for assisting in preparing this research material.Pivotal Question 1: Will the EEMI sector grow in 2020?EEMI sector growth is a function of capex and industrial production (IP) and should be in the 2.5% range

40、 for 2020E. We use two lenses to look at sector growth:One year lens: Our proprietary multivariate regression model for sector growth takes into account our Global Industrials capex forecasts for 3,000+ companies covered by UBS analysts, as well as IP data (actual and forecast). This analysis shows

41、a tight fit with EEMI organic growth and projects a tepid growth outlook into 2020 in the range of 2.5%, almost entirely driven by IP as there is virtually no growth impulse from incremental capex spend.Tactical lens / momentum: We find that the second derivative of the OECD Leading indicator index

42、(LEI) has been a reliable leading indicator for Industrial sector performance. Our analysis (below) shows that we are at an inflection point with incremental data points just starting to improve, after having fallen since 2018. If this trend continues, history would tell that within 6months the EEMI

43、 sector should become an outperformer.Figure 5: We view EEMI organic growth as being driven by CAPEX and Industrial Production. Our proprietary model implies muted EEMI sector growth in 2020 driven by IP, not CAPEX9%6%3%- 3%)6%)9%)2%)2%3% 6%3%3%(2%)(2%)(2%)(1%) 1%5%4% 4% 4%(0%)6%7%3% 1% 2% 2% (1%) 1

44、% 3% 2% 1%3% 2% 0%1% 3% 2%2%(3%)(7%)(5%)2%12%6%(12001200220032004200520062007200820092010201120122013201420152016201720182019e2020e(15%)Growth drivers: CAPEX + IP UBS Proprietary CAPEX + IPPredictor model tightly fits with actual EEMI sector org. growth.We expect LSD sector organic growth for 2020.F

45、igure 4: 1.3% org. growth needed for flat sector marginsy = 0.253x - 0.003410%Change in EBTIDA margin8%6%4%2%0%-2%-4%-6%-8%-10%-50% -30% -10% 10% 30% 50%Change in organic growth Source: UBS, Company dataFigure 6: Lacklustre CAPEX outlookCapex Contribution to EEMI Sector GrowthIP Contribution to EEMI

46、 Sector Growth Organic sector growth (UBSe) US EEMIOrganic sector growth (UBSe) Large caps onlySource: UBS Global Industrials Capex Model, Company data, DatastreamFigure 7: Acceleration/Deceleration in macro data (e.g., the OECD leading indicator index) leads relative Industrials performance by 6 mo

47、nths15%10%5%-(5%)(10%)20162017201820192020202120162017e2018e2019eQ2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3OECD Leading Indicator Index (2nd derivative, advanced 6m, L) 1.4%1.2%1.0%0.8%0.6%0.4%0.2%0.0%-0.2%-0.4%-0.6%-0.8%Industrials vs S&P 500 (y/y, R)05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 2025

48、%20%15%10%5%0%-5%-10%-15%Source: UBS Global Industrials CAPEX modelSource: Factset, OECD, UBSInsights: CapexThe capex driven component of growth should continue to provide support for the remainder of Q4 19 but then add no meaningful incremental growth into 2020 (underlying CAPEX growth is expected

49、to be 1%).That being said, we believe its important to highlight (see for more detail in the capex deep dive section) that there is also no momentum to the downside, which we clearly had in the last industrial recession in 2015 and 2016 where capex was down (2%) (9%).Regionally, we see differences i

50、n spend patterns in 2020, with APAC down 0.4% whereas North America is up 0.8% and Europe up 1.3%.Gross private domestic investment as a % of GDP is near peak levels in the US but has come off peaks in China over the last few years. The multi-year trend in Europe has been positive but absolute level

51、s are still below pre GFC levels. That being said, in all three regions we seem to be at or beyond the post GFC peaks. It appears that these high investment levels are taking a breather at the moment, which (again) is consistent with our bottom up capex model suggesting no growth contribution from c

52、apex into 2020.What is our confidence level here? Our model uses total global capex spend across all sectors. If we were to focus our forecasts exclusively on 15 downstream (EEMI customer) sector verticals which we see as most relevant for industrial companies, we would get a slightly better picture

53、, so we believe the risk at this point is skewed to the upside. We discuss details of this in the capex section of this report.Figure 8: Capex spend by region (note: region refers to the domicile of a companys legal HQ)Capex by Geographic region,# ofCurrent estimatesYOY (Local)companies2011201220132

54、0142015201620172018e2019e2020e2021eAPAC CISEurope MEAN. AmericaS. AmericaTotal capex1,05113.4%6.1%8.9%(3.2%)0.1%(7.9%)9.5%10.4%2445.1%(4.6%)6.4%(14.9%)(21.5%)(14.4%)23.7%(1.5%)6259.6%7.6%0.4% (0.2%)0.3%(6.4%)(2.6%)4.9%15(10.9%)10.3%37.5%(30.8%)(3.3%)5.0%(11.2%)(9.1%)80325.0%12.2%4.9%7.7%(3.3%)(10.0%

55、)5.8%15.3%10414.4%9.9%4.0%(2.4%)(5.8%)(20.2%)(10.6%)3.9%2,62217.3%7.9%5.0%0.5%(2.3%)(8.9%)4.6%10.0%5.2%(0.4%)(0.1%)4.9%(0.6%)0.9%6.7%1.3%(0.9%)3.4%10.6%(14.2%)3.6%0.8%0.2%6.3%14.6%(2.4%)5.0%0.9%(0.2%)Source: UBS Global Industrials CAPEX model, Company DataFigure 9: US Industrial capex proxyFigure 10

56、: EU Industrial capex proxyFigure 11: China Industrial capexproxy20%18%16%14%12%10%8%6%US: Private Domestic Investment as a % of GDP52 60 68 76 84 92 00 08 1624%23%22%21%20%19%18%EU: Gross Capital Formation as a% of GDP95 98 01 04 07 10 13 16 1950%45%40%35%30%25%20%15%10%sChina: Gross Capital Format

57、ion a a % of GDP52 60 68 76 84 92 00 08 16Source: Factset, UBSSource: Factset, UBSSource: Factset, UBSCan IP drive sector growth?Our model suggests that IP growth will be the main driver for the sector in 2020 but remain at modest levels with a contribution of ca. 2% growth. The nature of a more sho

58、rt-cycle measure is that it is harder to predict but we are confident that the momentum we are on into 2020 paints an incrementally positive picture for global IP. In addition to medium and LT econ forecasts, we also monitor the OECD leading indicator, which leads U.S. IP growth by 4 months and Indu

59、strials relative stock performance by 6 months, indicating a potential turnaround in momentum. Figure 13 suggests U.S. IP could bottom in late 2019, with the potential for a recovery into 2020. We would note that our global econ team forecasts continued weakness U.S. IP, going from 1.3% in 2019E to

60、0.7% in 2020E. This could be more of a risk factor for stocks like 3M (link to 3M initiation note), with more U.S. exposure (40% of sales).Figure 12: OECD leading indicator helps foresee changes in Global IP with ca. 3 month lead timeMacro indicators suggest IP softness should start to turn positive