A Wall Street firm struck a chord in three industrial stocks Tuesday, reaffirming the Club’s forecast for a rise in shares of Stanley Black & Decker and Honeywell International. Eaton also received a well-deserved upgrade. Although the industrial sector fell along with the broader market this week, the group saw solid growth through the second quarter. Through Tuesday, the sector has climbed nearly 24% over the past six months and 9.13% year to date, benefiting from a broader rally outside of mega-cap technology stocks. In light of Barclays’ upbeat rating, here’s a closer look at where analysts and the Club stand on Eaton, Stanley Black & Decker and Honeywell. ETN year-to-date Eaton (ETN) year-to-date performance Barclays upgraded Eaton from underweight to hold and raised its price target on the stock from $250 to $300 per share. This implies a 4.7% decline from Eaton’s Tuesday close. The boom in generative artificial intelligence will drive future sales growth for the power equipment provider as long as “the current data center mania persists,” analysts wrote in a note to clients. They also raised their full-year 2024 earnings per share estimates to $10.31 from $10.28. Barclays analysts said “it’s safe to say” that their underweighting of Eaton shares since 2022 was not one of their “best decisions” in their coverage universe, which includes about two dozen of companies with an industrial vocation. “The stock is expected to experience one of the highest organic sales growth rates in (our coverage) over the next several years; This, coupled with the widespread perception that this growth is ‘secular’ in nature, means that a sharp compression of valuation multiples may not occur for some time,” they wrote. The Club took its stake in Eaton largely due to its ability to benefit from the generative AI wave, as Barclays acknowledged in its upgrade. “I don’t know why (analysts) decided to sell this,” Jim Cramer said Tuesday. “They were obviously misinformed. …Eaton is part of this broad shift in the grid that we’re talking about.” Like analysts, we believe that increasing demand for electricity as more data centers pop up to support supports power-intensive AI computing workloads will benefit Eaton’s business in the long term. The Club raised its price target on Eaton last month, from $290 to $330 $ per share, while affirming our 1 Equivalent Buy rating. Eaton has performed strongly since joining the portfolio in November, setting a series of all-time highs before posting a 30.7% gain since SWK Year-to-date performance of Stanley Black & Decker (SWK) Analysts raised Stanley Black & Decker’s price target slightly to $107 per share from $105, which implies an increase of approximately 13% from Tuesday’s close of $94.49. Barclays reiterated the company’s overweight rating and raised its full-year EPS estimates to $4.26 from $4.17. Barclays argued that the worst was likely behind Stanley Black & Decker’s crucial tooling business, which is in the midst of 11 consecutive quarters of declining volumes. Its brands include DeWalt, Craftsman and Black & Decker. “We believe 2023 will see a trough in the tool volume trend and the company will begin to make significant progress in reducing inventory,” the analysts wrote. “As (free cash flow) increases significantly along with inventory reduction, balance sheet leverage should decrease and the stock should be repriced higher as investors can anticipate earnings recovery.” Barclays’ view generally reflects the Club’s thesis, which is rooted in the business recovering from various post-Covid difficulties. Stanley Black & Decker could also benefit from possible rate cuts from the Federal Reserve in 2024. Lower borrowing costs may increase activity in the housing sector, particularly in the existing home market. This may lead to increased demand for Stanley Black & Decker’s offerings from DIY customers who want to purchase tools for home improvement projects or various repairs. Our price target on the stock is $110 per share, which we set after its quarterly results in August. We also maintained a Buy rating of 1 on the stock. HON YTD mountain Honeywell International (HON) Annual Performance Honeywell’s price target increased slightly from $230 to $232 per share, implying a 15.9% gain from Tuesday’s close. Analysts raised their full-year EPS estimates by a penny, to $9.94, while maintaining their Buy rating on the stock. The company expects buyouts to accelerate and Honeywell to deploy more capital toward mergers and acquisitions. “HON will benefit from steps taken by management to reorient the business mix towards a higher growth portfolio,” the analysts say. “We believe its medium-term margin target will prove conservative given opportunities for further operational improvement, and (free cash flow) conversion is increasing.” This is largely in line with our view of Honeywell, although our price target remains at $230 per share. The Club reaffirmed our 1 equivalent Buy rating and price target following the release of the company’s quarterly results on February 1st. At last week’s monthly meeting, Jim highlighted his belief that Honeywell CEO Vimal Kapur, who has held the top job since June 2023, should consider overhauling the industrial conglomerate’s vast business portfolio. “It’s time for Kapur to declare what he wants his Honeywell to be,” Jim said. “Whatever he wants will be better than what we have because it looks more and more like a pastiche of industrialists. But you have to own it before it moves.” One solution could be selling its personal protective equipment division, Bloomberg News reported Tuesday, citing people familiar with the matter. The company has hired advisors to study options for the business, which could be worth more than $2 billion, according to the report. (Jim Cramer’s Charitable Trust is long ETN, SWK, HON. See here for a complete list of stocks.) As a subscriber to CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a transaction. Jim waits 45 minutes after a trade alert is sent before buying or selling a stock in his charity’s portfolio. If Jim talked about a stock on CNBC TV, he waits 72 hours after the trade alert is issued before executing the trade. THE ABOVE INVESTMENT CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY, AS WELL AS OUR DISCLAIMER. NO OBLIGATION OR FIDUCIARY OBLIGATION EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTMENT CLUB. NO SPECIFIC RESULTS OR PROFITS ARE GUARANTEED.
The Honeywell International sign sits outside the company’s former world headquarters in Morristown, New Jersey.
Daniel Barry | Bloomberg | Getty Images
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