Schneider Electric (QT@F.FR; SU FP) – $146B market cap; $180M ADV: We added Schneider Electric to the Developed Markets Focus List as the stock bounced off its 10-WMA support on above average volume. Schneider Electric is a global market leader in energy management and industrial automation solutions. Rising capex in electrification, expected gradual improvement in the discrete automation market, and transition of its software business from a license-based to a subscription-based model are the key growth drivers. Consensus expects revenue CAGR of 6% and adjusted EPS CAGR of 14% during FY23–25. Fundamental & Technical note
Author: vipin khare
O’Neil Capital Equipment Sector Weekly
Ultratech Cement (URC.IN; UTCEM IN) – $37B market cap; $52M ADV: We added Ultratech Cement to the Emerging Markets Focus List as the stock broke out of a stage-two flat base into a new all-time high. Ultratech, India’s largest cement manufacturer, is expected to benefit from the swift implementation of infrastructure projects and strong government support for affordable housing. Energy prices, its key cost, have corrected from their peaks last year and are expected to decline further, driving the company’s margins. Ultratech is also investing in capacity expansion and acquisition and is expected to increase its cement capacity to 200MTPA in the next three years from 150MTPA. Consensus expects revenue and EPS CAGR to be 12% and 25% in FY24–26, respectively. Fundamental & Technical note
Jun 7, 2024 – AI Capital Equipment
O’Neil Capital Equipment Sector Weekly
Mitsubishi Heavy Industries (MH@N.JP; 7011 JP) – $31B market cap; $394M ADV: We added Mitsubishi Heavy Industries to the Developed Markets Focus List as the stock reclaimed its 50-DMA. It is forming a stage-five 10-week consolidation base, with pivot 2% away. The company is one of Japan’s largest heavy machinery makers. It manufactures gas turbines, defense equipment, nuclear reactor vessels, and other industrial machinery. The company’s leadership in gas turbines could facilitate clean energy transition. A robust orders growth in defense business coupled with favourable government policies supporting higher margins, and nuclear energy resurgence primarily in Japan and Europe, are the key growth drivers. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Construction Partners (ROAD) – $3B market cap; $25M ADV: We added Construction Partners to the U.S Focus List as the stock broke out of a stage-three cup base into a new all-time high. It is the No. 1 or No. 2 provider of road
construction and maintenance services in the fast-growing south-eastern states in the U.S. The company benefits from the strong demand for infrastructure expansion and the need to invest in deferred infrastructure maintenance in
these states. It operates in a highly fragmented end market, providing it with ample opportunity for consolidation with half of the expected annual revenue growth coming from acquisitions. It is also vertically integrated with asphalt plants
in each of its markets leading to better supply chain control and ability to capture better margins. The company’s revenue is highly predictable and recurring in nature, with a regular stream of maintenance contracts. Consensus expects
revenue CAGR of 14% and EPS CAGR of 47% over the next two years
O’Neil Capital Equipment Sector Weekly
KBR (KBR) – $9B market cap; $77M ADV: We added KBR to the U.S. Focus List as the stock broke out of a stage-one 41-week consolidation base on above average volume. It is bouncing off its 21-DMA support and is actionable here. KBR provides consulting services for various defense and space programs to government agencies. It is the only listed player offering process technology licensing and advisory for energy transition projects to commercial clients globally. The
company has exposure to some of the fastest growing defense spending end markets such as cyber intelligence and space with a global TAM of ~$238B, expected to have a 5–7% CAGR in FY23–27. KBR benefits from rising energy transition investments as it develops sustainable process technologies and offers advisory for commercialization of hydrogen and ammonia production plants. Consensus expects revenue CAGR of 11% and EPS CAGR of 16% over the next two
years. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Escorts Kubota (ESC.IN) – $5B market cap; $12M ADV: We added Escorts Kubota to the Emerging Markets Focus List as the stock broke out of a stage-one 28-week cup base on above average volume and is actionable here. Escorts is one of the top four players in the Indian tractor industry. It is benefiting from the rising mechanisation trend and government subsidies for tractors. The demand for tractors is expected to bottom out in the upcoming months and turn positive in FY25 due to a cyclical rebound. The company’s JV with Kubota has helped increase its product base and export channels, adding ~6% in revenue opportunity. Its construction and railway equipment businesses benefit from the strong infrastructure push by the government. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
TransDigm (TDG): Reported a beat-and-raise Q2 FY24 results yesterday before market open. Revenue (+21% y/y) beat estimates by 2% and adjusted EPS (+34% y/y) beat estimates by 8%. We recommend investors hold positions as the stock is extended here after bouncing off its 21-DMA yesterday. Look for a low volume pullback to its short-term moving averages for adding to positions.
O’Neil Capital Equipment Sector Weekly
Safran (SGM.FR) reported its Q1 FY24 revenue numbers and reiterated its FY24 guidance. In Q1 FY24, revenue increased to €6,220M (+18% y/y), beating estimates by 1% and driven by double-digit growth in all its end markets.
- Its civil aftermarket segment revenue was up 27% y/y, while LEAP OE engines deliveries were flat y/y. Strong ramp-up in OE deliveries in landing gear, power, and nacelles drove equipment and defense segment revenues.
- Management indicated that narrowbody air traffic has recovered to 113% of FY19 levels, while widebody air traffic is still at 94% of FY19 levels.
- It also reiterated its FY24 guidance and expects recurring operating income of ~€4B (+26% y/y), adjusted revenue of ~€27.4B (+18% y/y), and free cash flow of €3B (+2% y/y). It reduced its LEAP engine deliveries growth
target to 10–15% from 20–25%.
O’Neil Capital Equipment Sector Weekly
E Ink (PVI.TW): We removed E Ink from the Emerging Markets Focus List due to technical deterioration. The stock has been lagging since reporting its Q4 FY23 results in March. 2024 gross margin guidance of 50%+ compared with estimates of 55% could have weighed on investor sentiment. It has breached support along its 50- and 100-DMA on above average volume and is trading 20% off highs. Next support is at its 200-DMA (-3%). Fundamental & Technical note
