1、North America Equity Research10 July 2019US MachineryQ219 Earnings PreviewMachineryAnn Duignan AC(1-212)622-Bloomberg JPMA DUIGNAN J.P.Morgan Securities LLCThomas Simonitsch(1-212)622-J.P.Morgan Securities LLCNatalia Vaysblit-Vitebskiy(1-212)270-3922natalia.vaysblit-J.P.Morgan Securities LLCBhanu P
2、Koduru(91-22)6157-J.P.Morgan India Private LimitedSee page 59 for analyst certification and important disclosures,including non-US analyst disclosures.J.P.Morgan does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the firm may have
3、a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.The S&P Machinery Index has slightly underperformed the broader market YTD(up 17%vs.S&P 500 up 20%)and is now trading at 14.4x con
4、sensus 2019 EPS(vs.three-year average of 17.2x),3.5 turns below the S&P 500 Indexnot a huge surprise given where we are in the US economic cycle and the growing fears of a global slowdown.We are downgrading three stocks from Overweight to Neutral heading into Q2 earnings:1)TRMB(up 37%YTD)is approach
5、ing our price target and we do not see a catalyst to support a higher multiple;2)AGCO(up 38%YTD)is just below our price target and we see no catalyst for multiple expansion or significant earnings upside;and 3)PH(up 11%YTD)on weaker industrial production globally.We will co-host a call today at 10am
6、 ET with Steve Tusa and our colleagues in Europe and Japan;please contact us or your JPM salesperson for dial-in details.Global manufacturing PMIs are slowing.JPMs global manufacturing PMI fell 3.5-pts YoY to 49.4 in June,down 0.4-pts from May.Regionally,the ISM US Manufacturing PMI was 51.7 in June
7、,still above 50 but down 0.4-pts from May;the Eurozone PMI was 47.6 in June,down 0.1-pt MoM;and the China PMI was 49.4 in June,down 1.2-pts MoM.China and Europe have been slowing for a few quarters while the fear in the US is that business sentiment is weakening more broadly,weighing on investment.W
8、e note the three largest US states in terms of GDP are CA,TX and NY(though TX is contributing the most to growth);interestingly,the San Francisco Fed recently reported an increase in business uncertainty while the Dallas Fed survey of business activity fell to a three-year low and even the NY Fed re
9、ported rising service business uncertainty as a cause for concern.The uncertainty seems to be weighing on both manufacturing and service sectors,raising concerns of a further slowdown in economic activity.Oil/gas,truck,agriculture and automotive are growing risks.Investments in US oil/gas have decli
10、ned and are expected to be down 10%in 2019,weighing on equipment and parts demand.The Cass Freight Index fell 6%YoY in May,a fifth month of decline which,coupled with weakness in spot market pricing across the trucking industry,is weighing on truck orders and used truck values seem to be cracking.Th
11、e impact of the weather on US agriculture remains a headwind at least in the near term until farmers have a clearer picture of 2019 yields(and cash receipts).US automotive production remains stable while the switch to pick-up trucks vs.cars remains a positive catalyst for suppliers.On the other hand
12、,non-residential construction activity remains above last cycle peak but seems to be slowing while public Highway&Street construction spending is up 19%YoY on a 3MMA basis.Input costs moderating;can pricing hold up?Hot rolled coiled steel prices are down 40%from last years peak and companies have pu
13、shed through significant price actions as a result of broader input cost inflation.Now with demand slowing,there may be pressure to give up pricing.Top picks and stocks to avoid.Going into Q2 we remain OW CAT and think the company can beat and raise;its backlog will be a key catalyst.The truck stock
14、s(PCAR and CMI)should deliver decent quarterly results given the level of production.We would avoid PH and KMT as both companies will have to guide FY20 and are likely to be cautious;also CNHI,DE and TRMB on their exposure to NA agriculture.2North America Equity Research10 July 2019Ann Duignan(1-212
15、)622-Equity Ratings and Price TargetsMkt CapRatingPrice TargetCompanyTicker($mn)Price($)CurPrevCurEnd DatePrevEnd DateActuant CorpATU US1,430.3623.13Nn/c23.00Dec-19n/cn/cAGCO Corp.AGCO US5,856.0776.45NOW77.00Dec-19n/cn/cAllison Transmission HoldingsALSN US5,702.7745.17UWn/c48.00Dec-19n/cn/cCaterpill
16、ar Inc.CAT US77,727.05134.29OWn/c172.00Dec-19n/cn/cCNH IndustrialCNHI US14,088.8410.39Nn/c11.00Dec-19n/cn/cCummins IncCMI US26,297.99167.29Nn/c169.00Dec-19n/cn/cDeere&Co.DE US52,666.45163.35UWn/c124.00Dec-19n/cn/cEaton Corp.ETN US34,178.4880.25OWn/c92.00Dec-19n/cn/cIllinois Tool WorksITW US47,919.99
17、146.41Nn/c144.00Dec-19n/cn/cKennametal Inc.KMT US2,831.8633.98Nn/c39.00Dec-1940.00n/cManitowoc Co.MTW US600.2316.84Nn/c17.00Dec-19n/cn/cMilacronMCRN US991.4513.93Nn/c14.00Dec-1913.00n/cNavistar IntlNAV US3,323.2033.50Nn/c34.00Dec-19n/cn/cOshkosh Corp.OSK US5,901.1283.40Nn/c85.00Dec-19n/cn/cPACCAR In
18、c.PCAR US24,565.1170.63UWn/c66.00Dec-19n/cn/cParker HannifinPH US21,025.43163.36NOW169.00Dec-19186.00n/cTerex CorpTEX US2,079.8829.46OWn/c42.00Dec-19n/cn/cTrimble IncTRMB US11,350.7145.15NOW46.00Dec-19n/cn/cWABCOWBC US6,791.08132.30NRn/cSource:Company data,Bloomberg,J.P.Morgan estimates.n/c=no chang
19、e.All prices as of 09 Jul 19.3North America Equity Research10 July 2019Ann Duignan(1-212)622-Table of ContentsValuation.4Fundamentals In Manufacturing.7Bright Spot in US:Public Construction Spending.8NA Truck:Risks Growing.10EU Truck Registrations Strong YTD.11Automotive Production Forecasts Revised
20、 Down Again.12Challenging Agriculture Fundamentals.13Rig Counts and Well Completions Bear Watching.15China Machinery Sales Strong YTD.16Pricing Power Remains In Focus.17Earnings Summary.19Earnings Schedule.20Actuant Corp.21AGCO Corp.22Allison Transmission Holdings.23Caterpillar Inc.24CNH Industrial.
21、25Cummins Inc.26Deere&Co.27Eaton Corp.28Illinois Tool Works.29Kennametal Inc.30Manitowoc Co.31Milacron.32Navistar Intl.33Oshkosh Corp.34PACCAR Inc.35Parker Hannifin.36Terex Corp.37Trimble Inc.38WABCO.394North America Equity Research10 July 2019Ann Duignan(1-212)622-ValuationThe S&P Machinery Index s
22、lightly underperformed the broader market YTD(up 17%vs.S&P 500 up 20%).Within our coverage,total shareholder returns have averaged 18%YTD;top performers include AGCO(up 38%),TRMB(up 37%),OSK(up 37%),NAV(up 29%),and CMI(up 27%),while underperformers include KMT(up 3%),ALSN(up 4%),CAT(up 7%)and TEX(up
23、 8%).By sub-sector,our construction equipment group was up 22%YTD while the diversified industrials group was up 13%,the truck group was up 22%,and the agriculture equipment group was up 21%.Table 1:Total Shareholder ReturnsSource:Bloomberg,J.P.Morgan.Total Shareholder Returns20092010201120122013201
24、42015201620172018Q2192019 YTDS&PS&P 500 Index26%15%2%16%32%14%1%12%22%-4%4%20%S&P 500 Machinery Index40%54%-10%17%27%4%-15%34%42%-15%4%17%Construction&EnginesCAT33%69%-1%2%3%3%-23%42%75%-18%1%7%CMI75%143%-19%25%33%4%-37%61%33%-22%9%27%MTW17%32%-29%72%49%-5%-30%84%64%-62%8%14%OSK321%-5%-39%39%70%-2%-
25、18%68%42%-32%12%37%TEX14%57%-56%108%50%-33%-33%73%54%-42%-2%8%TRMB17%58%9%38%16%-24%-19%41%35%-19%12%37%Construction&Engines-Average80%59%-23%47%37%-9%-27%61%51%-32%7%22%Construction&Engines-Median25%58%-24%38%41%-4%-27%65%48%-27%9%21%Diversified IndustrialsATU-2%44%-15%23%31%-26%-12%8%-2%-17%2%10%E
26、TN33%64%-12%29%44%-8%-21%34%22%-10%4%19%ITW41%14%-10%34%41%15%0%35%39%-22%6%17%KMT20%55%-6%11%32%-30%-45%68%58%-30%1%3%MCRNNANANANANANA-37%49%3%-38%22%17%PH29%63%-10%14%54%2%-23%48%45%-24%0%11%Diversified Industrials-Average24%48%-11%22%41%-9%-23%40%27%-23%6%13%Diversified Industrials-Median29%55%-1
27、0%23%41%-8%-22%41%30%-23%3%14%Truck and Truck ComponentsALSNNANANA-10%38%25%-22%33%30%3%4%4%CMI75%143%-19%25%33%4%-37%61%33%-22%9%27%NAV81%50%-35%-43%75%-12%-74%255%37%-39%7%29%PCAR29%60%-32%25%35%18%-27%38%15%-15%6%25%WBC65%136%-29%50%43%12%-2%4%35%-25%1%23%Truck and Components-Average62%97%-29%10%
28、45%9%-32%78%30%-20%5%22%Truck and Components-Median70%98%-31%25%39%8%-32%50%34%-24%6%26%Ag MachineryAGCO37%57%-15%14%21%-23%1%29%25%-21%12%38%CNHINANANANA33%-27%-13%30%56%-30%3%15%DE45%56%-5%14%8%-1%-11%39%55%-3%4%11%Ag Machinery-Average41%56%-10%14%21%-17%-8%32%45%-18%6%21%Ag Machinery-Median41%56%
29、-10%14%21%-23%-11%30%55%-21%4%15%Coverage Universe Relative Performance5North America Equity Research10 July 2019Ann Duignan(1-212)622-The S&P Machinery Index is now trading at 14.4x 2019 EPS estimates(vs.three-year average of 17.2x),3.5 turns below the S&P 500 index;our coverage universe is trading
30、 at 12.9x consensus 2019 EPS.The construction group is trading at 9.9x 2019E EPS(vs.three-year average forward P/E of 16.7x).The diversified industrial group is trading at 14.3x 2019E EPS(vs.three-year average 16.6x).The truck group is trading at 11.2x 2019E EPS(vs.three-year average 17.5x).The agri
31、cultural equipment group is trading at 14.4x 2019E EPS(vs.three-year average 18.3x).Table 2:Multiples Remain Relatively CompressedSource:Bloomberg,J.P.Morgan estimates.TSR%07/09/19YTD3Y Avg 2Y Avg 1Y AvgS&PS&P 50020%17.2x17.0 x16.4x17.9x16.1xS&P Machinery17%17.2x15.7x13.8x14.4x13.7xConstruction&Engi
32、nesCaterpillar Inc7%18.7x14.3x11.0 x10.8x10.3xCummins Inc27%13.5x11.9x9.8x10.3x11.3xManitowoc Co14%NANANA12.2x9.7xOshkosh Corp37%15.3x13.7x10.5x11.2x10.7xTerex Corp8%19.2x14.5x9.4x7.2x7.4xAverage(ex-MTW)20%16.7x13.6x10.2x9.9x9.9xTrimble37%21.6x21.0 x19.0 x21.6x19.3xDiversified IndustrialsActuant Cor
33、p-A10%21.6x21.4x20.6x19.0 x17.2xEaton Corp Plc19%14.8x14.5x13.6x13.6x12.8xIllinois Tool Works17%19.8x19.4x17.7x18.4x17.3xKennametal Inc3%16.4x13.9x11.7x10.8x10.2xMilacron Holding17%10.0 x9.7x8.9x10.2x8.4xParker Hannifin11%17.1x16.0 x14.4x13.9x12.9xAverage13%16.6x15.8x14.5x14.3x13.1xTruck&Truck Compo
34、nents Allison Transmission4%11.7x10.4x9.6x9.0 x9.2xCummins Inc27%13.5x11.9x9.8x10.3x11.3xNavistar Intl29%30.5x14.9x10.1x8.3x12.0 xPACCAR Inc25%13.9x12.3x10.5x10.5x12.3xWABCO Holdings Inc23%17.7x17.4x15.7x17.9x17.1xAverage22%17.5x13.4x11.1x11.2x12.4xAgricultural MachineryAGCO Corp38%18.4x16.3x14.0 x1
35、5.6x14.0 xDeere&Co11%17.6x15.3x13.4x15.7x12.3xCNH Industrial15%18.8x16.5x12.7x11.8x10.8xAverage21%18.3x16.0 x13.4x14.4x12.3x20192020Forward P/E Multiple6North America Equity Research10 July 2019Ann Duignan(1-212)622-Figure 1:In January,Our Coverage Was Trading At 11.6x Our 2019E EPSSource:Bloomberg,
36、J.P.Morgan estimates as of January 1,2019.Figure 2:Now The Group Average Multiple Has Expanded To 13.6x Our 2019E EPSSource:Bloomberg,J.P.Morgan estimates.ATUAGCOALSNCATCNHIETNDECMIITWNAVKMTMCRNOSKPCARPHWBC TRMB-25%-15%-5%5%15%25%35%3x5x7x9x11x13x15x17x19x21x23x2019 EPS Growth(JPMe)Forward P/E Multi
37、pleEarnings Growth vs.Forward P/E Multiple(2019)Avg.2019 EPS GrowthAvg.Fwd P/E Multiple1 St.DevMTW(13x,181%)TEX(7x,45%)ATUAGCOALSNCATCNHIETNDECMIITWKMTMCRNOSKPCARPHWBC TRMB-25%-15%-5%5%15%25%35%3x5x7x9x11x13x15x17x19x21x23x2019 EPS Growth(JPMe)Forward P/E MultipleEarnings Growth vs.Forward P/E Multi
38、ple(2019)Avg.2019 EPS GrowthAvg.Fwd P/E Multiple1 St.DevMTW(12x,233%)TEX(7x,51%)NAV(17x,-26%)7North America Equity Research10 July 2019Ann Duignan(1-212)622-Fundamentals In ManufacturingThe JPM global manufacturing PMI declined 3.5-pts YoY to 49.4 in June,down 0.4-pts MoM.The ISM US Manufacturing PM
39、I came in at 51.7 in June,down from 52.1in May;the New Orders component was 50.0 in June,down 2.7-pts MoM and down 13.0-pts YoY.The data suggest that the pace of industrial activity decelerated in the quarter;the New Orders index was at 50(i.e.,no growth)after 41 consecutive months of above 50(signa
40、ling expansion).The Caixin China manufacturing PMI was 49.4 in June(down 1.2-pts MoM and down 1.6-pts YoY),signaling contraction(below 50)for the second consecutive month.Similarly,the Markit Eurozone PMI came in at 47.6 in June(down 0.1-pt MoM and down 7.3-pts YoY),the second lowest reading since A
41、pril 2013.Figure 3:JPM Global Manufacturing PMI At 49.4 In Jun19Source:Bloomberg,J.P.Morgan.Figure 4:ISM US Manufacturing PMI At 51.7 In Jun19Source:Bloomberg,ISM,J.P.Morgan.Figure 5:Caixin China Manufacturing PMI At 49.4 In Jun19Source:Bloomberg,Markit,J.P.Morgan.Figure 6:Markit Eurozone Manufactur
42、ing PMI At 47.6 In Jun19Source:Bloomberg,Markit,J.P.Morgan.20304050607080Index LevelJ.P.Morgan Global Manufacturing PMI20304050607080Index LevelISM US Manufacturing PMI20304050607080Index LevelCaixin China Manufacturing PMI20304050607080Index LevelMarkit Eurozone Manufacturing PMI8North America Equi
43、ty Research10 July 2019Ann Duignan(1-212)622-Bright Spot in US:Public Construction SpendingFigure 7:Private Non-Residential Spending Up 0.7%In Q219TD.Source:US Census Bureau,J.P.Morgan.Figure 8:.But The 3M ROC Is DeterioratingSource:US Census Bureau,J.P.Morgan.Figure 9:Total Public Spending Up 12.8%
44、In Q219TDSource:US Census Bureau,J.P.Morgan.Figure 10:.The 3M ROC Trend May Be PeakingSource:US Census Bureau,J.P.Morgan.414,495454,290100,000150,000200,000250,000300,000350,000400,000450,000500,000Private Construction Spending:Non-Residential(SAAR,$MM)0.60.70.80.91.01.11.21.31.4Rate Of Change(x)Val
45、ue Of Private Construction Put In Place,Non-Residential(SAAR)3M ROC12M ROCMean+1 St.Dev-1 St.Dev325,481340,635100,000200,000300,000400,0001999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Total Public Construction Spending(SAAR,$MM)0.80.91.01.11.
46、21999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019Rate Of Change(x)Total Value Of Public Construction Put In Place(SAAR)3M ROC12M ROCMean+1 St.Dev-1 St.Dev9North America Equity Research10 July 2019Ann Duignan(1-212)622-Figure 11:State&Local Cont
47、ract Awards For Highways At A PeakSource:ARTBA.Figure 12:Airport Investments Up 25%Source:ARTBA.Figure 13:State Budgets Mostly Supportive Of Continued InvestmentSource:ARTBA.Figure 14:Biggest Risk Is Contractor Profitability On Rising InputsSource:ARTBA.46.1 42.2 44.1 45.3 54.3 49.1 51.2 54.7 15.7 1
48、7.0 19.6 20.9 20.8 16.0 18.7 21.0$0$10$20$30$40$50$60Aug11Aug12Aug13Aug14Aug15Aug16Aug17Aug18State&Local Contract Awards(Trailing 12 Months,$B)HighwaysBridges$0$2$4$6$8$10$12$14Value Of Airport Terminal&Runway Construction Work(January-July)$BReal$BNominal$B41 39 19 8 11 8 14 19 22 9 -5 10 15 20 25
49、30 35 40 45 50FY 2009FY 2010FY 2011FY 2012FY 2013FY 2014FY 2015FY 2016FY 2017FY 2018Number of States Making Mid-Year Budget Cuts2%2%4%4%4%14%16%4%4%7%8%11%20%22%0%5%10%15%20%25%Steel pipes,bends,couplingsSteel&Iron castingsHighway guardrails,scaffolds,gratingsCable,spring work,chain link fencingBrid
50、ge sections,expansion joints,structural steelSteel pilings,bars&tubesSteel bars,conduits,well casingsChange in Producer Prices for Steel Related InputsAug18 vs.Aug17Aug18 vs.Mar1810North America Equity Research10 July 2019Ann Duignan(1-212)622-NA Truck:Risks GrowingThe New Orders component of the IS
