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
Author: vipin khare
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
O’Neil Capital Equipment Sector Weekly
Hexcel Corp (HXL), a supplier to Boeing, was down after announcing a CEO change. The new CEO has previously served as the CEO of Spirit AeroSystems, a company which has a long history of quality problems, an inability to generate cash, and an inability to drive margin expansion. This has led to downgrades by brokers, citing both uncertainties stemming from the upcoming leadership change and the possibility of an FAA investigation on the Boeing 787, a key program for Hexcel’s portfolio. The stock breached support along all its key moving averages and is trading 21% off its 52- week high. It has the next level of support at $58.81 (-6%).
O’Neil Capital Equipment Sector Weekly
Mazagon Dock Shipbuilders (MZK.IN; MAZDOCKS IN) – $5B market cap; $34M ADV: We added Mazagon Dock Shipbuilders to the Emerging Markets Focus List as the stock retook its 50- and 100-DMA on ~8x the average volume. Mazagon Dock is a Government of India majority-owned company and is India’s third largest shipyard. It builds and repairs warships and is the sole domestic player building conventional submarines and destroyers for the Indian Navy. It is benefitting from the government’s Make-in-India push for defense procurement. The company’s strong order book (~5x the FY23 revenue) and pipeline, coupled with new initiatives to expand its repairs and refits business, provide good visibility for revenue growth in the future. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Paychex (PAYX), a provider of payroll services, reported mixed Q3 FY24 results. Revenue (+4% y/y) missed estimates by 1%, while adjusted EPS (+7% y/y) beat estimates by 1%. Management revised its overall revenue growth guidance downward to
5–6% y/y growth from 6–7% y/y growth guided earlier. The stock declined 6% intraday. However, it recovered and closed above all its key moving averages. It has been trading sideways in a tight range since December 2023. RS line is in a downtrend,
with a weak RS Rating of 56. A/D Rating of D-.
O’Neil Capital Equipment Sector Weekly
Alfa Laval (ALF.SE; ALFA SS) – $17B market cap; $26M ADV: We added Alfa Laval to the Developed Markets Focus List as the stock broke out of a stage-one 10-week cup base on above average volume into a new all-time high. Alfa Laval is the global market leader in heat transfer, separation, and fluid handling equipment. Its products include heat exchangers, separators, and pumps with application in the food & beverage, shipbuilding, and oil & gas industries, among others. Decarbonization and the energy efficiency push continue to drive the demand for its heat exchangers. The company’s marine application products should benefit from a recovery in the shipbuilding industry and the global oil consumption. The emerging trend of plant-based foods and growing demand for biofuels are aiding the sales of its separators. Consensus expects revenue and EPS CAGR of 6% and 15%, respectively, over the next two years. Fundamental & Technical note
O’Neil Capital Equipment Sector Weekly
Toyota Tsusho (TYTS.JP; 8015 JP) – $23B market cap; $62M ADV: We added Toyota Tsusho to the Developed Markets Focus List. The company is one of the seven general trading companies in Japan. It has presence across industries, such as metals, electronics, chemicals, and energy, with high exposure to the automotive end market (~70% of profit). Toyota Tsusho should benefit from the increasing demand for automobiles globally, with Toyota Motors as its primary customer for metal and other automotive parts. Increasing adoption of automobiles in Africa is expected to be a key growth driver. It is the largest provider of renewable energy in Japan and is expected to double its capacity globally by FY30. Consensus expects revenue and EPS CAGR of 3% each over the next two years. Fundamental & Technical note
