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.

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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

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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.

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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.

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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.

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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.


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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.

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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.

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Nordstrom's Growth Strategy

Investors in upscale retailer Nordstrom  have enjoyed a spectacular week with the stock rising nearly 15% after its recent results. The market took heart from Nordstrom's overall trading performance and the announcement that it is seeking a partner for its credit card receivables. It appears that all is going well for Nordstrom, but how do the results tie in with its long-term strategic plans? This is an important question, because Nordstrom will look like a different business in a few years' time.

Nordstrom's long-term plans
The retail sector has been bedeviled with some unusual conditions because of the protracted and moderate nature of the recovery. The bottom end has continued to struggle, while the high end has done relatively better. Meanwhile, the mid-range department stores have suffered as middle-class shoppers traded down with their lack of exposure to the higher-end shopper. Anyone who doubts these trends need only take a look at how J.C. Penney  has suffered in recent years. J.C. Penney's investment proposition now relies solely on the successful execution of its turnaround strategy. 

Nordstrom's full-line stores sit somewhat in between the mid and high range, and the environment has necessitated a significant restructuring of its growth priorities. The good news is that -- unlike J.C.Penney-- Nordstrom has been investing early and aggressively.

Indeed, a breakout of its same-store sales growth reveals how Nordstrom is evolving.


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Fortinet Cash Flow Analysis

IT security company Fortinet has delivered strong results recently, and despite recent falls, the stock is still up nearly 12% this year. However, headline numbers do not always tell the full story and Fools should look closely at changes in its cash flow generation in order to better judge the company. Is it maturing into the kind of cash cow that rival Check Point Software  is, or is it moving in the other direction?

Fortinet's disappearing free-cash flow
As a company matures it typically sees its revenue growth slow, and a company like Check Point Software is a good example of this. Check Point Software's revenue growth has slowed to single-digits, but over the last five years it has converted an average of around 59% of its revenue into free-cash flow.

Fortinet's mid-teens revenue growth tells investors that the business is less mature than Check Point, but the real question is how is Fortinet's free-cash flow conversion developing?

Unfortunately, investors received some bad underlying news on this issue in 2013. Simply put, a combination of weaker than expected revenue growth, and more importantly, the need to carry more inventory managed to eat into its cash flow conversion. Indeed, a table of its revenue and free-cash flow guidance over the year reveals what happened.

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IBM's Investor Day Fails to Impress

IBM's   management used its recent investor day to affirm its commitment to its target of $20 in earnings per share by 2015. Usually, this sort of news meets with a favorable response from the market, but the sell-off in the stock indicates that investors have some concerns. Not only does IBM have a lot to do to hit the target, but it's relying on its growth initiatives in areas where it faces increasing competition from rivals such as Oracle and Microsoft. So what do you need to know about IBM's strategy to return to growth?

IBM's skeptics multiply
Investment analysts tend to produce estimates that come pretty close to management's guidance or slightly above it. This fact makes the consensus forecast for IBM's 2015 earnings of $19.81 all the more interesting. As a group, they don't believe IBM will hit the number, and the following points mark why they might be skeptical. I'll start with a breakout of how IBM's segment revenues have grown in recent years.


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Were Cisco's Earnings Really That Good?

Great operational performance doesn't necessarily mean a stock is a great investment. Sometimes, all it takes is a cheaply rated company to deliver slightly better-than-expected results in order to deliver good returns to shareholders. Such considerations spring to mind when considering Cisco Systems'  latest third-quarter results. They weren't great, especially when compared with a rival like Juniper Networks   in its core switching and routing businesses, but they were enough. So, what are the chances that Cisco can do it again?

Cisco beats its own guidance
At the time of its second-quarter results, there was a sense that the stock could go higher just beating its weak guidance. In fact, Cisco's management had forecast a 6%-8% revenue decline for the third quarter, only to deliver a 5.5% decline. While a mid-single-digit revenue decline is nothing to write home about, there were some positive signs indicating that Cisco can get back to growth.

Total orders grew by 1%, and the book-to-bill ratio was "comfortably above one." Both metrics are an indication of future growth, but they are also a reflection of how bad Cisco's operational performance has been. The following revenue growth chart helps to demonstrate some of the underlying themes.

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NICE Systems Earnings Analysis

NICE Systems  delivered a set of first-quarter results that were anything but nice, and the stock fell nearly 10% on the day of the results. The company specializes in offering hardware and software that captures and analyzes customer interactions across a number of platforms. For these reasons, it's often seen as a big-data play. Fools may be asking what the disappointing results mean for NICE, for rivals like Verint Systems  , and for companies looking to expand its data analytics offerings, like IBM ?

NICE Systems soft first quarter
A quick roundup of the results reveals that revenue and EPS came in below the bottom end of its guidance. In addition, its full-year guidance was reduced.

• First-quarter revenue of $228.6 million vs. guidance of $230 million-$240 million
• First-quarter non-GAAP EPS of $0.57 vs. guidance of $0.58-$0.63
• Full-year revenue guidance reduced to $995 million-$1.025 billion from $1.01 billion-$1.035 billion
• Full-year non-GAAP EPS guidance reduced to $2.68-$2.80 from $2.73-$2.85
• Second-quarter guidance of $230 million-$240 million in revenue, and non-GAAP EP of $0.55-$0.62

It was anything but a nice quarter, and the report doesn't auger well for Verint or IBM. It matters to IBM because the company is a partner of NICE in offering big-data analytics solutions, and, as Fools already know, IBM is depending on growth in areas like business analytics to counter slow growth elsewhere in its product portfolio. In fact, earlier this year, IBM announced a $1 billion investment in creating a business unit for Watson, its supercomputer system that delivers data analytics via the cloud.  

More of a NICE Systems issue than an industry problem
While it's never good news to see a leading company in an industry reducing full-year guidance, there are three key reasons that suggest this is more of a company-specific issue.

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Is Johnson Controls a Buy?

It's rare that someone can point to a company that has just delivered an increase in quarterly earnings of more than 50% and say that its results were "mixed," but that's exactly the case with Johnson Controls Inc.  . Its automotive-based segments gave mixed results, while its construction-based segment's results were disappointing. Moreover, its guidance for the construction industry was somewhat at odds with what rivals like Lennox International   and Ingersoll-Rand  reported. But there is a lot to like about the company, and investors should follow the current share price decline with a lot of interest.

What investors were expecting from Johnson Controls
The company reports results within three separate segments, and a look at its segmental income for the first half reveals how it makes money. For ease of reference, its power solutions business is a leading supplier of automotive batteries, automotive experience sells automotive finishing (seating, interiors, etc.), and building efficiency sells heating, ventilation, and air conditioning, or HVAC, solutions.


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Will General Electric's Bid For Alstom Kick-Off Takeover Mania?

The questions that most industrial sector followers must be asking themselves about General Electric Company's  intended purchase of Alstom's energy business, are whether it will kick-start a prolonged bout of takeover activity in the industrial sector, and which companies could be involved?  Moreover, what does the deal mean for General Electric and the industrial sector at large?

More deals to come
The answer to the first question is that the intended GE-Alstom deal isn't so much a catalyst for deal making in the sector, but rather a reflection of what many of its peers have already been saying.

For example, Danaher's  management recently outlined that they felt they had the ability to deploy $8 billion toward acquisitions, and that dealmaking would be the "primary focus" of its capital allocation strategy. Market speculation will inevitably focus on Agilent Technologies, not least because it's spinning off its test and measurement business away from its core life science and diagnostics operations.  Another potential target could be filtration and separation company, Pall Corp., although it's hard not to think that its current valuation of 30 times earnings doesn't have some sort of takeover premium built in.

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Is Cognex Corporation a Buy?

Vision machine company Cognex Corporation  has had a great run over the last two years, with its stock price up more than 84%, and the move reflects its strong operating performance. Moreover, other companies with exposure to factory automation spending like Rockwell Automation   and ABB Ltd.   are seeing some positive signs, so does it all add up to make Cognex a buy?

Cognex offers good growth prospects
Essentially, Cognex's main growth drivers come from four main sources, all of which are seeing the company expand its total addressable market, or TAM. For those that don't know the company well, Cognex provides machine vision solutions that monitor automated manufacturing processes.

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Baker Hughes Outperforms its Peers

Prospects for oil services company Baker Hughes   are never really going to be divorced from the outlook for energy prices. However, the company has made great strides in operationally adjusting to flattish energy markets over the last year. Alongside companies such as Halliburton  and General Electric's  energy segment, it's been forced to innovate to generate growth and develop its international business. The good news is that its plans are working.

Baker Hughes innovates
The following chart demonstrates the relationship between Baker Hughes and the U.S. Rotary rig count (data compiled by Baker Hughes).

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