Federal Signal (FSS) – $5B market cap; $35M ADV: We removed Federal Signal from the U.S. Focus List. The stock breached its 200-DMA decisively post weak Q4
FY24 results on Wednesday and is trading below all its key moving averages. Revenue from the safety and security systems segment increased only 1% y/y in Q4.
Order growth has decelerated in the past few quarters. Consensus is in line with the midpoint of the company’s guided EPS range for FY25. We believe earnings
upgrades are unlikely in the near term. Next support is at $76.85 (-4%). Fundamental & Technical note
Author: vipin khare
Industrials Themes
Key points from this report:
- Existing home inventories have shrunk as homeowners do not want to give up their low mortgage rates booked during 2020–2021.
- This is driving prices for traditional homes higher.
- The housing deficit in the U.S. is good for overall new homes demand.
- But due to higher mortgage rates and high traditional home prices, buyers are unable to afford.
- In this scenario, revenue and earnings of traditional homebuilders are taking a hit.
- The demand for factory-built homes, which costs about one-third of site-built homes, could increase.
- Included are annotated Datagraphs® for:
- Traditional homebuilders (those that we like and would wait for better technical action before entering): DHI, LEN, TMHC, GRBK; and
- Factory-built home manufacturers: CVCO, SKY.
O’Neil Capital Equipment Sector Weekly
Axon Enterprise (AXON) – $38B market cap; $449M ADV: We booked a 55% gain and removed Axon Enterprise from the U.S. Focus List as the
stock pulled back 31% from its all-time high after a failed breakout and breached its 50- and 100-DMA on above-average volume. Concerns over the
new U.S. administration’s focus on federal spending cuts could have dampened investor sentiment. A couple of brokers have downgraded the stock
in the past week, citing high valuations. Next support is at its 200-DMA (-10%). Fundamental & Technical note
Industrials Themes
Key points from this report:
- Defense budgets across European nations are expected to swell over the next few years as the U.S. might pressure NATO members to raise the defense spending target to 5% of GDP, up from the current target of 2%. European defense contractors stand to benefit.
- With their competitive lead times and lower costs, South Korean defense contractors stand to gain from the EU struggling to raise its defense production capacity after years of decline.
- Included are annotated Datagraphs® for defense contractors in Europe and South Korea: RHMX.DE, CSF.FR, LDO.IT, KOG.NO, AM@F.FR, SAAB.SE, HAGX.DE, SGA.KR, HRO.KR, LNX.KR, and ZCM.KR.
O’Neil Capital Equipment Sector Weekly
Alfa Laval (ALF.SE; ALFA SS) – $18B market cap; $25M ADV: We removed Alfa Laval from the Developed Markets Focus List as the stock breached its 200-
DMA on above average volume after its Q4 FY24 print two weeks back. Revenue and EPS missed estimates by 4% and 9%, respectively. Weak demand for
heat pumps continues to impact revenue growth. Support is at SEK 457 (-4%), followed by SEK 452 (-5%). Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
HD Hyundai Heavy Industries (HH3.KR): Reported Q4 FY24 results on Thursday. It reported mixed preliminary numbers three weeks back. Revenue (+17% y/y) came in slightly below estimates, while net income (+1,083% y/y) beat estimates by 105%. The stock bounced off its 21-DMA (-13%) and made a new all-time high. It is extended from an ideal entry point here. Wait for a low-volume pullback to its short-term moving averages before adding to positions.
O’Neil Capital Equipment Sector Weekly
TransDigm (TDG): Reported mixed Q1 FY25 results yesterday before market open. Revenue (+12% y/y) missed estimates by 1%, and adjusted EPS (+9% y/y) beat estimates by 2%.
FY25 guidance was kept largely unchanged and missed consensus. After the mixed print, the stock declined 3.4% yesterday and breached its 100-DMA. Look for support at its 50-DMA
(-1%), followed by its 200-DMA (-3%).
O’Neil Capital Equipment Sector Weekly
AAON (AAON) – $9B market cap; $59M ADV: We booked a 52% gain and removed AAON from the U.S. Focus List as the stock gapped down below its 50-DMA and
breached its 100-DMA on 3.5x the average volume after China AI startup DeepSeek triggered a sell-off in data center infrastructure stocks globally. Support is near $106
O’Neil Capital Equipment Sector Weekly
EXL Service (EXLS) – $8B market cap; $43M ADV: We added EXL Service to the U.S. Focus List as the stock broke out of a stage-two six-week flat base on above average volume into a new all-time high and is actionable here. EXL Service is a data analytics and business process outsourcing (BPO) company. The company’s edge lies in deep domain expertise in insurance and healthcare industries, with nine of the top 10 U.S. insurers and six of the top 10 healthcare providers as its clients. Strong demand for its GenAI analytics products and an accelerating client activity is driving growth. Consensus expects revenue and EPS CAGR of 12% and 15%, respectively, in FY23–26. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Crane Company (CR) – $9B market cap; $38M ADV: We removed Crane Company from the U.S. Focus List as the stock breached support along its 200-DMA. The
company faces weak demand in its Process Flow Technologies segment, especially in the industrial market, and does not expect significant recovery in its MRO
business in Europe and China. It also expects FY24 free cash flow to be at the lower end of the $255M–275M range due to hurricane impact and supply chain issues in the aerospace industry. Next support is at $141.19 (-6%). Fundamental & Technical note
