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FEDEX CORP

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188.9000
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These 12 industrial stocks in the S&P 500 are down 20% or more, but Wall Street analysts still love them

Shares of FedEx are rated “buy” by 90% of sell-side analysts, according to FactSet.

No matter your views on last year’s corporate tax cuts, it’s reasonable to expect that they would lift earnings — and stock prices — of the largest U.S. industrial companies.

But for many, the lift to share prices hasn’t happened. In fact, a large number of big industrial names are in bear markets — typically defined as a 20% decline from a peak. That may mean some good entry points for long-term investments in these “industrial bears.”

The S&P 500 index SPX, -3.24% has returned only 2.7% over the past 12 months, including reinvested dividends. Over the same period, the S&P 500 industrial sector is down 3.1% (also including reinvested dividends). Moreover, using 52-week intraday highs as the recent peak, 32 of 69 S&P 500 industrial stocks are in bear markets (through Dec. 4), according to price data supplied by FactSet.

The worst performer among these industrial bears has been General Electric GE, -6.79% , which has plunged 58% over the past 12 months. But even everyone’s favorite industrial basket-case pincushion can fall so low that some analysts will see value. Among 22 sell-side analysts covering GE, 41% have a “buy” or equivalent rating on the shares. The consensus price target of $11.77 implies 62% upside for the shares over the next 12 months from the closing price of $7.28 on Dec. 4.

Of course, that falls short of a majority of positive feelings for GE, let alone a clear consensus. So we narrowed down the list to the 12 industrial bears that have “buy” or equivalent ratings from at least two-thirds of analysts polled by FactSet.

Here they are, sorted by the percentage of positive ratings:

Company Ticker Industry Share 'buy' ratings Share neutral ratings Share 'sell' ratings Total analysts Closing price - Dec. 4 Consensus price target Implied 12-month upside potential
Harris Corp. HRS, -2.63% Telecom. Equipment 93% 7% 0% 14 $139.04 $187.17 35%
FedEx Corp. FDX, -6.31% Air Freight/ Couriers 90% 10% 0% 29 $215.52 $289.50 34%
Jacobs Engineering Group Inc. JEC, -4.87% Engineering & Construction 83% 17% 0% 18 $62.77 $83.06 32%
American Airlines Group Inc. AAL, -7.47% Airlines 76% 24% 0% 21 $36.69 $47.70 30%
Raytheon Co. RTN, -4.16% Aerospace & Defense 75% 25% 0% 24 $165.68 $222.39 34%
Masco Corp. MAS, -5.69% Building Products 75% 25% 0% 20 $30.68 $38.76 26%
Textron Inc. TXT, -4.02% Industrial Conglomerates 71% 29% 0% 14 $54.45 $71.08 31%
United Rentals Inc. URI, -10.88% Finance/ Rental/ Leasing 70% 25% 5% 20 $106.29 $176.29 66%
L3 Technologies Inc. LLL, -2.50% Aerospace & Defense 67% 33% 0% 21 $178.27 $242.92 36%
Northrop Grumman Corp. NOC, -4.45% Aerospace & Defense 67% 33% 0% 21 $249.84 $337.47 35%
Huntington Ingalls Industries Inc. HII, -4.82% Aerospace & Defense 67% 20% 13% 15 $203.62 $256.00 26%
Stanley Black & Decker Inc. SWK, -7.11% Tools & Hardware 67% 33% 0% 15 $126.35 $150.00 19%
Source: FactSet

You can click the tickers for more information, including news, charts and financials.

Cutting the maximum federal corporate income-tax rate to 21% from 35% has helped feed an estimated 22% increase in earnings per share for S&P 500 companies for 2018 versus 2017, based on weighted aggregate consensus estimates. Analysts expect the industrial sector’s EPS to increase by 19%.

That pace should slow once the impact of the tax cuts has been felt for a full year. Analysts expect EPS to rise another 9% for the S&P 500 in 2019, and an expected 11% for the industrials.

Here are estimates for sales and earnings in both 2019 and 2020 for the current analyst favorites among the industrial bears:

First, sales:

Company Ticker Est. sales ($mil) - 2018 Est. sales ($mil) - 2019 Est. sales ($mil) - 2020 Expected increase - 2019 Expected increase - 2020
Harris Corp. HRS, -2.63% $6,409 $6,875 $7,385 7% 7%
FedEx Corp. FDX, -6.31% $68,893 $73,502 $77,488 7% 5%
Jacobs Engineering Group Inc. JEC, -4.87% $15,448 $17,008 $17,768 10% 4%
American Airlines Group Inc. AAL, -7.47% $44,689 $46,973 $48,978 5% 4%
Raytheon Co. RTN, -4.16% $27,134 $28,970 $30,752 7% 6%
Masco Corp. MAS, -5.69% $8,339 $8,774 $9,127 5% 4%
Textron Inc. TXT, -4.02% $14,259 $14,740 $15,458 3% 5%
United Rentals Inc. URI, -10.88% $7,913 $8,932 $9,317 13% 4%
L3 Technologies Inc. LLL, -2.50% $10,167 $10,760 $11,388 6% 6%
Northrop Grumman Corp. NOC, -4.45% $30,055 $34,263 $36,388 14% 6%
Huntington Ingalls Industries Inc. HII, -4.82% $7,964 $8,166 $8,486 3% 4%
Stanley Black & Decker Inc. SWK, -7.11% $13,990 $14,802 $15,442 6% 4%
Source: FactSet

Next, earnings per share:

Company Ticker Est. EPS - 2018 Est. EPS - 2019 Est. EPS - 2020 Expected EPS change - 2019 Expected EPS change - 2020
Harris Corp. HRS, -2.63% $7.21 $8.43 $9.59 17% 14%
FedEx Corp. FDX, -6.31% $16.52 $19.01 $21.58 15% 14%
Jacobs Engineering Group Inc. JEC, -4.87% $4.66 $5.37 $5.77 15% 7%
American Airlines Group Inc. AAL, -7.47% $4.55 $5.34 $6.36 17% 19%
Raytheon Co. RTN, -4.16% $10.10 $11.87 $13.75 18% 16%
Masco Corp. MAS, -5.69% $2.42 $2.75 $3.09 14% 12%
Textron Inc. TXT, -4.02% $3.20 $3.58 $4.17 12% 17%
United Rentals Inc. URI, -10.88% $16.21 $18.44 $20.16 14% 9%
L3 Technologies Inc. LLL, -2.50% $10.26 $11.60 $13.20 13% 14%
Northrop Grumman Corp. NOC, -4.45% $19.04 $18.05 $20.59 -5% 14%
Huntington Ingalls Industries Inc. HII, -4.82% $18.30 $16.08 $16.13 -12% 0%
Stanley Black & Decker Inc. SWK, -7.11% $8.14 $8.77 $9.77 8% 11%
Source: FactSet
Philip van Doorn covers various investment and industry topics. He has previously worked as a senior analyst at TheStreet.com. He also has experience in community banking and as a credit analyst at the Federal Home Loan Bank of New York.

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