- XLI has underperformed the S&P 500 by 50bps over the past five days and outperformed by 760bps year-to-date.
- We are Overweight on Capital Equipment sector in the U.S. and Emerging Markets Focus Lists and Underweight on the sector in the Developed Markets Focus List.
- In terms of industry groups (#1=best; #197=worst):
- Top-ranked groups include Aerospace/Defense (#4), Steel-Specialty Alloys (#9), and Bldg-Heavy Construction (#24).
- Lowest-ranked groups include Bldg-Wood Prds (#196), Bldg-Resident/Comml (#184), and Bldg-Mobile/Mfg & Rv (#178).
- Bldg-Constr Prds/Misc (#112 versus #150 last week), Bldg-Maintenance & Svc (#83 versus #107), and Machinery-Farm (#38 versus #53) have shown strength and improvement in Group Rank over the last week.
Author: vipin khare
O’Neil Capital Equipment Sector Weekly
- XLI has performed in line with the S&P 500 over the past five days and outperformed by 810bps year-to-date.
- We are Overweight on Capital Equipment sector in the U.S. and Emerging Markets Focus Lists and Underweight on the sector in the Developed Markets Focus List.
- In terms of industry groups (#1=best; #197=worst):
- Top-ranked groups include Aerospace/Defense (#5), Steel-Specialty Alloys (#11), and Security/Sfty (#25).
- Lowest-ranked groups include Bldg-Wood Prds (#192), Comml Svcs-Staffing (#188), Bldg-Resident/Comml (#185), and Bldg-Hand Tools (#176).
- Bldg-Heavy Construction (#38 versus #50 last week) and Machinery-Gen Industrial (#84 versus #96) have shown strength and improvement in Group Rank over the last week.
O’Neil Capital Equipment Sector Weekly
Sector Summary
- XLI has outperformed the S&P 500 by 80bps over the past five days and 810bps year-to-date.
- We are Overweight on Capital Equipment sector in the U.S. and Emerging Markets Focus Lists and Equalweight on the sector in the Developed Markets Focus List.
- In terms of industry groups (#1=best; #197=worst):
- Top ranked groups include Aerospace/Defense (#7), Steel-Specialty Alloys (#11), and Security/Sfty (#24).
- Lowest ranked groups include Bldg-Wood Prds (#191), Comml Svcs-Staffing (#181), Trucks & Parts-Hvy Duty (#171), and Bldg-Resident/Comml (#169).
- Comml Svcs-Market Rsrch (#76 versus #108 last week), Comml Svcs-Consulting (#56 versus #76), and Comml Svcs-Outsourcing (#67 versus #83) have shown strength and improvement in Group Rank over the last week.
O’Neil Capital Equipment Sector Weekly
Sector Summary
- XLI has outperformed the S&P 500 by 1% over the past five days and 7% year-to-date.
- We are Overweight on the Capital Equipment sector in the U.S. and Emerging Markets Focus Lists and Underweight on the sector in the Developed Markets Focus List.
- In terms of industry groups (1=best; 197=worst):
- Top ranked groups include Aerospace/Defense (Rank 3), Steel-Specialty Alloys (9), and Security/Sfty (26).
- Lowest ranked groups include Bldg-Wood Prds (Rank 190), Metal Prds-Distributor (186), Trucks & Parts-Hvy Duty (178), and Bldg-Resident/Comml (172).
- Machinery-Constr/Mining (Rank 69 vs. 159 last week), Security/Sfty (26 vs. 79), Bldg-Heavy Construction (43 vs. 94), and Bldg-Maintenance & Svc (96 vs. 125) have shown strength and improvement in Group Rank over the last week
O’Neil Capital Equipment Sector Weekly
EXL Service (EXLS) – $8B market cap; $68M ADV: We added EXL Service to the U.S. Focus List as the stock reclaimed its 50- and 100-DMA on above average volume following its Q1 FY25 print. EXL Service is a data analytics and business process outsourcing (BPO) company. Nine of the top 10 insurers and six of the top 10 healthcare providers in the U.S. are its clients. BPO contracts are for three or more years, providing revenue stability. Recently, the company launched a large language model for the insurance industry, which is one of the best in the space. Client activity has accelerated in H2 FY24 as banks are increasing their budgets, which is driving a recovery in the data analytics segment. Consensus expects revenue and adjusted EPS CAGR of 11% and 14%, respectively, in FY24–26. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Loar (LOAR) – $9B market cap; $57M ADV: We added Loar to the U.S. Focus List as the stock broke out of a stage-one 19-week cup-with-handle base on above average volume. It generates ~85% of its revenue from proprietary products, enabling premium pricing. The company supplies key components to major aircraft platforms like the Boeing 737 and A320 and should benefit from production ramp-ups. Increased aircraft utilization is driving demand for high-margin aftermarket services. It operates in a fragmented market and is expanding market share through strategic acquisitions. Consensus expects revenue and net income to have a CAGR of 21% and 102%, respectively, during FY24–26. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Ex FL-idea GE Aerospace (GE), the world’s largest aerospace engine manufacturer, reported Q1 FY25 results. Revenue (+11% y/y) missed estimates by 1%, while
adjusted EPS (+60% y/y) beat estimates by 17%. Adjusted operating margin expanded to 23.8% (+460bps y/y), beating estimates by 250bps. Strong aftermarket
demand continued to drive revenue growth and margin expansion. The company will focus on cost control to offset tariff impact. It maintained FY25 guidance for lowdouble-digit y/y revenue growth (estimates: +12.3% y/y) and adjusted EPS of $5.10–5.45 (+15% y/y at the midpoint), which came 3% below consensus. The stock
gapped above its 200-DMA and reclaimed its 100-DMA on above average volume. It is 12% off its 52-week high. Next resistance is at its 50-DMA (+4%). RS line is close GEto its multi-year high, with a strong RS Rating of 86. Acc/Dist Rating is weak at D+.
O’Neil Capital Equipment Sector Weekly
Per media reports, the Chinese government has asked domestic airlines not to place new orders for Boeing (BA) aircrafts and seek approval before taking any new deliveries. The
stock is trading below all its key moving averages and is 21% off its 52-week high. Support is at its recent low of $128.9 (-17%). Weak RS Rating of 46.
Industrials Themes
Key points from this report:
· On April 10, the U.S. president stated that the country might consider purchasing advanced ships from trusted allies known for their strong shipbuilding capabilities.
· Year-to-date, South Korea (SK) shipbuilders have outperformed KOSPI by ~21%.
· 2024 marked the most active newbuild market since 2007:
o Decarbonization: Fleets replaced with more eco-friendly vessels.
o Increased natural gas demand boosted orders for high-margin LNG/LPG carriers.
· SK shipbuilders turned profitable in 2024:
o Prices for newbuilds increased due to limited shipyard capacity.
· SK dominates the high-end, eco-friendly segment (70%+ market share).
· The U.S. government seeks to revive its shipbuilding industry with SK’s cooperation.
o Tariffs on China-built ships that dock at U.S. ports to increase orders for SK.
· Included are annotated Datagraphs® for all the major SK shipbuilders: HH3.KR, OSM.KR, HUE.KR, SMH.KR, and HMO.KR.
O’Neil Capital Equipment Sector Weekly
EXL Service (EXLS) – $7B market cap; $50M ADV: We removed EXL Service from the U.S. Focus List as the stock broke below its 100-DMA and the bottom of its recent base ($43.68) on above average volume in the past couple of sessions amid general market weakness. The company reported Q4 FY24 results in February. Overall results were decent, with revenue and earnings growth accelerating, but the general market conditions could be weighing on the stock. It is testing support at its 200-DMA, with the next level of support at $38.36 (-8%). Fundamental & Technical note
