Friday, July 25, 2014

Can Boeing Increase Margins This Year?

One of the key considerations for Boeing investors in 2014 is whether the aerospace giant can increase operating margins on its commercial airplanes. Already this year, suppliers such as Spirit AeroSystems and Triumph Group have faced issues on different Boeing programs, and the increasing complexity of newer planes appears to be causing Boeing some production problems, too. All of this could contribute to cost overruns. It's time to look closer at some of these issues.



Boeing, Spirit AeroSystems, and Triumph Group
The company's full-year 2014 operating profit margin guidance of around 10% for its Boeing commercial airplanes, or BCA, segment looks a little conservative in light of the first-quarter result of 11.8%. As such, Boeing appears to have substantive opportunity to beat internal guidance, but it won't be plain sailing for a few reasons.



Fools already know that Boeing is still on track to ramp up production of the 787 Dreamliner to a rate of 10 a month in 2014. However, Boeing has had production issues with the 787, including the discovery of hairline cracks on the wings of some planes in production.

Moreover, two suppliers have also had issues on Boeing programs. Earlier, in the year, Triumph Group saw its costs increase due to internal quality issues that required replacement of some parts on the 747-8 -- a relatively new aircraft that Boeing has had difficulty selling. The aircraft maker only received 17 gross orders for its 747 planes in 2013, and it only has one order in the year to date. Boeing made two production rate cuts on the 747-8 last year.


READ THE FULL ARTICLE LINKED HERE

Thursday, July 24, 2014

General Electric's Aviation Growth Prospects

The aviation sector has been a standout performer for General Electric  in recent years, and the evidence suggests that Fools can expect more to come in the future. Near-term and mid-term indicators look positive, even as Pratt & Whitney, a unit of United Technologies , is competing hard with General Electric for new engine orders on the revamped Airbus A320 plane. General Electric's engines remains well placed on Boeing and Airbus programs, and its services revenues also look set to turn upwards. Moreover, industry trends remain positive, and the the aviation segment looks set to be a strong contributor to profits for years to come.



What aviation means to General Electric
A quick look at General Electric's industrial segment profit in 2013 demonstrates the growing importance of the aviation unit. Interested Fools can read an article focused on the oil and gas segment here.


Source: General Electric Presentations.



The aviation segment generated nearly $22 billion in revenue in 2013, with its commercial aerospace-based revenue significantly larger than its military business


READ THE FULL ARTICLE LINKED HERE

Wednesday, July 23, 2014

Stanley Black & Decker Earnings Analysis

One of the most consistent investment themes of 2014 so far has been that developed markets have gotten relatively stronger, while emerging markets have weakened. Therefore, what to do about Stanley Black & Decker ? The stock looks like a good value, and there are plenty of reasons to like it, but a large part of its growth prospects depends upon emerging markets. With that said, what are home improvement peers like Whirlpool  and Snap-on Incorporated  saying about end markets, and what should Fools consider before buying into Stanley Black & Decker?



Why emerging markets matter to Stanley Black & Decker
Back in October, investors were treated to an eye-watering mid-teens slump in the stock price as the company lowered its full-year 2013 guidance by more than 10%. The problems in 2013 were focused on the difficulty in raising margins in its security segment (particularly from its acquisition of Swedish security company Niscayah), and weaker growth expectations from its industrial and Construction Do-It-Yourself, or CDIY, segments. In particular, emerging markets had slowed, and sequestration effects had hit U.S. governmental revenue.


READ THE FULL ARTICLE HERE

Monday, July 21, 2014

Reasons to Buy FedEx

Following a weather affected start to the year UPS  and FedEx    have recovered nicely, with FedEx's latest results sending the stock sharply higher. Both stocks will always be correlated plays on global growth, but by stint of its productivity improvement plan, FedEx has an opportunity to strongly grow profits in the coming years. Moreover, e-commerce offers a good long-term growth opportunity. There is a lot to like about FedEx.



FedEx delivers strong results
Earlier in the year, FedEx was forced to reduce its full-year EPS guidance to $6.55-$6.80, and its rival, UPS, also reduced expectations by guiding the market to the low end of its full-year guidance of $5.05-$5.30. The good news is that FedEx summarily delivered diluted EPS of $6.75 in its full-year to May 2014. The market clearly liked the fact that its EPS figure came in at the top end of its range, but there are five other reasons investors should look favorably on the company.



Reasons to like FedEx
First, FedEx gave a slight upgrade to its expectations for U.S. GDP growth in 2015. A hike in expectations from 3% to 3.1% may not seem much, but it matters a lot to a company whose revenue correlates to economic growth. Moreover, at the start of the year, FedEx had predicted U.S. GDP growth of 2.4% in 2014, and global growth of 2.8%. Weather clearly played a part in reducing those estimates to 2.2% and 2.7%, respectively, but on a positive note, FedEx sees global growth accelerating to 3.1% in 2015 -- in line with U.S. guidance discussed earlier.


READ THE FULL ARTICLE LINKED HERE

Sunday, July 20, 2014

Stocks Exposed to the Business Jet Market

It's no secret that the commercial aerospace market has been very strong in recent years, with Boeing and Airbus continuing to build up large backlogs, but one sub-segment has been far slower to recover from the recession: the business jet market. However, it looks as though it's hit bottom, and it could be set to grow in future. Companies like General Dynamics (NYSE: GD  ) , Bombardier (TSX: BBD.B  ) , Ametek (NYSE: AME  ) , and Textron (NYSE: TXT  ) are worth considering in order to play this theme, and Fools should start looking more closely at these companies.



Is the business jet market recovering?
Industry data and historical relationships suggest that the answer to this question should be in the positive. The business jet market has always been super-cyclical, as corporate spending on them tends to lag corporate profitability. However, in the last few years, corporations have been highly reluctant to open the spending floodgates. Indeed, they continue to take a "cautiously optimistic" approach in the light of a moderately growing economy.

The good news is that, according to a Bloomberg research report, the downtrend in business jet deliveries looks to have bottomed, and with corporate profits on the rise, it's reasonable to expect some growth from here.




Thursday, July 17, 2014

What Caterpillar's Sales Figures Tell You About the Economy

In case anyone was in any doubt as to the ongoing bifurcation in prospects between developed and emerging markets, then Caterpillar's  latest monthly sales data will make it clear. Moreover, based on Caterpillar's numbers, investors in the industrial sector should look closely at their stocks' exposure to various industries. As a consequence of what Caterpillar just reported, companies like Joy Global  can expect some varied conditions in the mining sector, and there was even some negative news for General Electric Company  in the power generation market. It's time to look more closely.



Caterpillar reports mixed construction trends
The company reports out of three separate industrial segments, and Fools already know that in its first-quarter results in April, Caterpillar upgraded its forecast for full-year construction machinery sales from 5% to 10%. At the same time, it downgraded its view on full-year resource industry sales from a negative to 10% to a negative 20%. Its energy and transportation guidance was left unchanged. Fast forward to the May sales data and a few themes are emerging.

First, there appears to be a strong divergence between Asia/Pacific and North America in terms of construction trends.




Source: Caterpillar presentations


In addition, according to a Bloomberg research report, China's fixed-asset investment continues to moderate from the torrid pace of growth in previous years.


READ THE FULL ARTICLE LINKED HERE

Wednesday, July 16, 2014

Stocks to Win the War on Coal

In another blow to the coal industry, the Environmental Protection Agency, recently announced rules demanding that power plants should reduce carbon emissions by 30% from 2005 levels by 2030. The likely effect of enacting these rules will be to damage prospects for U.S. coal miners, and with China increasingly concerned with reducing its dependence on coal, their (coal miners') export prospects could also be adversely affected in the future. With that said, it's time to look at which companies have upside and downside opportunities if the "war on coal" continues.



False dawn for coal mining?
You don't need to be Einstein to understand the importance of relativity, and the fact that Joy Global's    management recently predicted U.S. coal production would be incrementally positive this year is obviously a short-term positive.

However, it's far too early to conclude that coal has passed an inflexion point on the way to another multi-year expansion. For example, Caterpillar   recently lowered its forecast for full-year resource industry sales from a negative 10% to a negative 20%. Caterpillar's stock price is doing well this year, but it's more about the construction sector exceeding expectations and successful implementation of manufacturing cost reductions.



In addition, A quick look at U.S. coal production over the last 30 years demonstrates the demise of coal in recent years. Moreover, Fools should note that the extent of the period of decline since the last recession indicates that this isn't just an adjustment to a slowdown in global growth.



US Coal Production Chart



Monday, July 14, 2014

Oracle's Earnings Guidance Just Changed

Another set of earnings meant another disappointment for Oracle  shareholders. Earnings, revenue, and key performance metrics all came in toward the bottom end of guidance, and Fools must be wondering just how reliable Oracle's guidance actually is? However, the company also made some reporting changes that should make its earnings easier to follow in the future, yet most of these adjustments simply reflect a change in industry-end demand.



In common with its main rival IBM , Oracle is shifting its efforts toward areas of growth such as cloud infrastructure. The question is, how will Oracle's new guidance help Fools to better follow the company?


READ THE FULL ARTICLE LINKED HERE

Thursday, July 10, 2014

Caterpillar, Johnson Controls and NCI Building Systems: Set for a Better Second Half?

Anyone wondering about the state of play in the economy should keep a close eye on the commercial construction sector in the U.S. While, the recovery in the U.S. residential market is likely to moderate from its torrid pace last year, the commercial construction sector has yet to really take off at all. In this regard, Caterpillar , Johnson Controls and NCI Building Systems  are all interesting to look at for clues as to if and when the sector will meaningfully contribute to economic growth again.


Caterpillar and Johnson Controls
At first, they may appear to be a disparate collection of business to look at, but all three have a specific exposures to the industry. Moreover, as outlined in a previous article they all looked like they were giving somewhat conservative guidance in their results in the first calendar quarter. Now that the second calendar quarter results are in, what are they saying about the state of the industry?


Caterpillar's results and guidance were the most positive overall, as the company upgraded its full-year forecast for construction machinery sales from 5% to 10%. Essentially, Caterpillar's construction machinery sales are receiving a boost from an inventory rebuild by its customers after they ran down inventory in 2013. On a positive note, management also outlined on the conference call, that there had been an increase in end-user demand -- a good sign for the industry.

Monday, July 7, 2014

General Electric's Oil & Gas Segment Analysis

The oil and gas services market doesn't always spring to mind when considering General Electric Company , but the company has made a number of strategic investments in the sector. Indeed, oil and gas is a key part of its strategy to realign itself as an industrial company. However, General Electric will have to be careful over its growth plans, because the industry has a number of long-term trends driving it, and companies like Baker Hughes Inc. and Dresser-Rand Group are seeing mixed fortunes in dealing with them.

The importance of oil and gas to General Electric Company
A quick look at 2013 industrial revenue by segment demonstrates that oil and gas is still only its fourth largest industrial profit center.


Source: General Electric Presentations


On the other hand, due to a combination of acquisitions and organic growth, the oil and gas segment has grown profits by 51% over the last five years.


READ THE FULL ARTICLE LINKED HERE

Saturday, July 5, 2014

Middleby Corporation Equity Research

According to analyst estimates, food equipment company Middleby Corporation  is on track for low-teens sales growth, with 12% and 22% EPS growth over the next couple of years. Moreover, there are a few reasons why investors can expect upside to those estimates going forward. In addition, industry rivals like Dover Corp.   and Illinois Tool Works  are also reporting good numbers in the food equipment sector -- indicating that Middleby's end markets are good. Is all of it enough to justify its valuation of nearly 26 times forward earnings for 2014?


Middleby middles it
The company operates out of three industry groupings and a quick look at its 2013 revenue split reveals the relative importance of each.


Source: Middleby Corporation Presentations

Middleby's commercial food segment competes with Illinois Tool Works and Dover Corporation, and its rivals are making some positive noises about the marketplace. For example, Illinois Tool Works reported strong growth in its food equipment sales in its most recent quarter. Moreover, in common with Middleby, Dover Corp. sees expansion opportunities in its refrigeration and food segment through products that enhance productivity.


Friday, July 4, 2014

Why Medtronic's Purchase of Covidien Makes Sense

Medtronic  investors are probably wondering what they could be getting with the acquisition of medical device company Covidien for $42.9 biillion. Simply put, Covidien's attraction is that its surgical equipment is helping it to outperform Johnson & Johnson  within the category, and fears of encroaching competition from Intuitive Surgical are probably overdone. Superficially, the company's forecast EPS growth rate of 7% for 2014 doesn't make it look like a high growth proposition, but for a host of reasons its growth is better than the headline numbers suggest. Let's take a quick look at three major reasons why Covidien is attractive to Medtronic.


Emerging markets
First, emerging market spending on health care is an exciting growth opportunity for the stock. For example, Johnson & Johnson's U.S. sales only increased 2.2% in its last quarter, while international sales grew 5.3% on an operational basis.


Although emerging markets only contributed 14.7% of Covidien's sales in the recent second quarter, they contributed 46% of the growth in the quarter. Moreover, as part of its growth plans for emerging markets, Covidien made an acquisition of a surgical equipment business in Brazil, and entered into a joint venture in China with a medical stapler company. Growth looks set to continue in 2014, with its emerging market sales growing 14% operationally in the second quarter and BRIC growth coming in at the "high teens".


Monday, June 30, 2014

Pall Corp Equity Research

Pall Corp presents one of the most compelling investment propositions in the industrial sector. The filtration and separation company's operations span a wide range of industries, where it competes with companies such as 3M  and Donaldson. However, with the stock trading on 29 times current earnings, it's hard not to conclude that much of the good news is already in the price. With that said, what  can Pall do to take the stock higher?  


A nice mix of stability and growth
The interesting thing about Pall is its combination of earnings drivers that ensure it can generate operating income through the economic cycle. The company operates out of two operating segments. The life science segment generates underlying demand from throughput activity in relatively stable industries such as pharmaceutical production. Meanwhile, the industrial segment is more focused in cyclical industries such as aerospace, microelectronics, and process.


A quick look at its segmental revenue (broken down into industry groupings) shows its life science segment has done relatively better than the industrial segment in recent years -- which is  to be expected given the sluggish global economic recovery. The life sciences end market is in blue with dotted lines. I'm focusing on consumable sales, rather than systems, because they made up nearly 89% of sales in the last quarter and tend to be higher margin.


Sunday, June 29, 2014

Don't Give up on Ross Stores and TJX Companies Just Yet

t's been a difficult couple of quarters for off-price retailers like TJX  and Ross Stores with a combination of extreme bad weather and a tough retail environment causing sluggish sales growth. The question going forward is whether this is just a temporary, weather-related phenomenon or the start of a downtrend.


TJX and Ross Stores report
Ross Stores and TJX have both reported and given disappointing sales growth figures. A chart of their comparable same-store sales figures (adjusted to fit the calendar year) demonstrates that they tend to follow each other and that the last two quarters have been difficult.



Source: TJX Companies and Ross Stores Presentation

Thursday, June 26, 2014

Reasons to Like Precision Castparts

A quick look at aerospace-focused component manufacturer Precision Castparts'   share price reveals much about the market's mood in 2014. After a good 2013, the stock is down 6% this year. It's almost as if the market has already priced in a cyclical recovery in the aerospace sector, and is now asking, "What next"? Indeed, the share price of its major customer, The Boeing Company  is also down year to date, while its peer Triumph Group  is also down. Is the market right to worry, or is this weakness a potential buying opportunity?


Boeing and Triumph Group give mixed results
It's no secret in the investing world that industry peer groups tend to move together, but that doesn't mean that the movements always make sense. In this case, Precision Castparts' prospects actually have gotten better in 2014, while Boeing and Triumph Group have both had issues as the year developed.

Wednesday, June 25, 2014

Home Depot and Lowe's Companies on the Housing Market


The U.S. housing market has unquestionably had a weak start to the year, and there is no shortage of top-down analysis on where the market is headed. Analyzing the macro-economic climate is one thing, but investors can also get a good view from what Home Depot and Lowe's Companies are saying.

What's going wrong?
Essentially, many are concerned a combination of rising mortgage rates and insufficient inventory are holding back housing turnover. Indeed, house price growth appears to have stalled since September 2013.
Source: S & P/Case Shiller

The question now is whether the housing market is going to stall, or if employment gains and an increase in credit availability (which would help counter any affordability issues) will push the housing market higher.

Evidence from Home Depot and Lowe's indicates that the underlying picture in the housing market is stronger than what the headline data suggested in the first quarter.


Tuesday, June 24, 2014

AGCO Faces a Difficult Year, but is the Stock a Buy Anyway?

Investing in agricultural machinery company AGCO Corporation  doesn't appear to be rocket science to many investors. In common, with rivals like Deere & Company , the stock's direction is usually dictated by movements in key farming commodity prices. At the same time, investors should be open-minded to buying when others think prospects are gloomy. So, with the stock in negative territory over the last year, is now the time to buy AGCO?

Near-term risks remain
Simply put, no one likes buying a stock with deteriorating earnings, and analyst forecasts are for AGCO's earnings to decline over the next two years.

Moreover, there are three reasons why AGCO faces near-term risk.

First, despite weakening market conditions, AGCO kept its outlook unchanged in the first quarter. This raises the fear that it will miss estimates going forward. Its full-year revenue guidance of $10.8 billion-$11 billion, and full-year EPS guidance of $6.00 was left unchanged, even while there has been some weakness in South America (19% of sales in 2013). Its South American sales declined 9.3% on a constant currency basis in the first quarter, and its rival Deere & Company also saw weakness that caused it to lower its full-year guidance for South America and the CIS countries.


Monday, June 23, 2014

Why Emerson Electric is set for a Better Second Half

Whenever a major industrial player like Emerson Electric Co.  (NYSE: EMR  ) gives results the market should sit up and take notice. In this instance, the results and the narrative around them suggest an ongoing, but fragile, economic recovery. Emerson's underlying performance was better than the headline numbers suggested, and there was some good news within the report for companies like Rockwell Automation (NYSE: ROK  ) and Cognex Corporation (NASDAQ: CGNX  ) . With that said, what should Fools be looking for in the global economy that might benefit Emerson going forward?


Emerson Electric's second-quarter results
Emerson's headline numbers weren't great with sales falling 2% in the quarter, and earnings before interest and taxes also declining 2%. A quick look at a segmental breakdown of Emerson's revenue and earnings growth reveals the trend in the quarter.


READ THE FULL ARTICLE LINKED HERE

Sunday, June 22, 2014

Why Deere is a Better Value Than Caterpillar

Investors often obsess over the short-term profitability of an equity, rather than considering the bigger picture of how the stock will work in their portfolios over the longvterm. Such thoughts spring to mind when I consider buying Deere & Company instead of a peer like Caterpillar . In short, Deere is facing a number of short-term negatives, but there is a growing case for buying the stock as a long-term hold.


Caterpillar and Deere, a tale of two markets
Any analysis of these two stocks will show that they tend to be highly correlated, but that doesn't mean they will be so in the future. Simply put, Caterpillar is much more of a play on construction and resources, with the two segments combining to generate 58% of product revenue in its first quarter. Meanwhile, Deere is more focused on agriculture and turf, which made up 83% of its machinery sales in its recent second quarter.


While, construction, mining and agriculture tend to be cyclical industries, there is no specific reason why they must all operate within the same cycle. However, investors don't always see it that way. Indeed, Deere and Caterpillar are often seen as de-facto plays on global growth, and in particular in China.


The idea being that the growing middle class in emerging markets will create more food demand, particularly for protein, which in turn demands more feed production. Meanwhile, the same growing middle class will demand more construction activity and therefore mining materials.



Saturday, June 21, 2014

Market Conditions Getting Better for Navistar, Cummins and Paccar?

Shares in truck engine manufacturer Cummins  have continued their strong run this year with the stock up around 9.5% year to date. Moreover, the indications from the industry are that North American conditions improved over the quarter, and key customers like Navistar  and Paccar  are also seeing improvements. With that said, what are the risks and rewards of buying Cummins stock today?


North American demand improving
Cummins reports out of four separate segments, with engine and components (mainly trucking) being the most important by far. A breakout of its earnings before interest, or EBIT, demonstrates what really matters.