FactSet Research (FDS) reported Q3 results. Revenue grew to $489M (+22% y/y) due to the acquisition of CUSIP Global Services and higher sales of research, advisory, and analytics solutions. Annual subscription value increased
to $1.9B (19% y/y). Adjusted EBITDA increased to $173.5M (+30.1%y/y). Adjusted EPS grew to $3.76 (+38.2% y/y), beating estimates by 17%. The stock reclaimed its 50-DMA on above average volume and is trading 24% below its 52-
week high.
Symbol: LMT
O’Neil Capital Equipment Sector Weekly
Rheinmetall (RHMX.DE) announced a new main battle tank, KF51 Panther, to replace its flagship Leopard 2. Management also announced that it expects revenue to grow 20% y/y in the current year, driven by increased demand for
military equipment due to the war in Ukraine. The company is modernizing Marder, Leopard 1, and Leopard 2 tanks and expects these to be potentially delivered to Ukraine. The stock is forming the right side of a stage-two cup base
and has good technical ratings.
Aerospace & Defense: A Resilient Group in a Volatile Market
Attached is a note on Aerospace & Defense from Director of Research Vipin Khare, Associate – Equity Research Pratyush Pradhan, and Analyst – Equity Research Abhijeet Singh.
Key points from this report:
- Aerospace/Defense has held up well in a weak market as investors seek cover in defensive high-quality stocks. It has the highest Group Rank of 30 in the Capital Equipment sector.
- Global military expenditure grew 2.6% y/y in FY20 compared to a GDP decline of 4.4% y/y led by increasing defense-related expenditure in Asia and Europe, driven by modernization of equipment and acquisition of new weapons. Global defense spending is expected to grow ~2.5%y/y in 2022.
- The U.S. is the largest global exporter of arms. However, Asian countries have had an export CAGR of more than 25% in the past five years, resulting in intensifying competition.
- The U.S. Department of Defense (DoD) has requested a budget of $715B for FY22E, implying a CAGR of 3.5% from FY17-22E. Stable demand trends for aircraft, strong growth in space equipment demand due to the launch of the Space force, increasing focus of C4I and the emerging need for cybersecurity, lower allocation toward large drone programs, and the emergence of hypersonic missiles are the key points of discussion.
- Global air travel demand may recover to 85–90% of 2019 levels in 2022. Strong replacement demand is expected over 20 years driving the need for services.
- Key Stocks: LMT, RTX, NOC, BA.GB, AM@F.FR, HEI, BAH, TDY, ULE.GB, IAD.IN, BHE.IN
O’Neil Capital Equipment Sector Weekly
Ex-Focus List Stock Trane Technologies (TT) reported Q4 FY21 results. Revenue was up 11% y/y organically, beating consensus estimates by ~1%. EPS increased 32%, beating estimates by 3%. Adjusted EBITDA margin improved to 14.7% (+30bps y/y) due to increased volume and higher prices. However, this improvement was offset by supply-chain issues and scarcity of labor. Organic booking during the quarter was up 27% y/y, driven by strong order growth across all its regions. TT has entered FY22 with a record backlog across all segments and is well-positioned for a profitable FY22 and FY23. For FY22, management guided
for revenue growth in a high-single digit, with adjusted EPS of $6.95–7.15 (+14–17% y/y), both in line with estimates. The stock has fallen 17% off its all-time high and is trading below its 50- and 200-DMA. The technical profile has deteriorated in the past few weeks with an A/D Rating of E and an RS Rating of 62. We would wait for the stock to retake its 50-DMA (+10%) before adding.
O’Neil Capital Equipment Sector Weekly
D R Horton (DHI) – $38B market cap; $265M ADV: We added DR Horton to our U.S. Focus List as the stock is trading at a 52-week high after breaking out of a stage-two 27-week double-bottom base. DHI is the largest homebuilder in the U.S. and caters to entry-level buyers. The company has recorded strong demand in all operating regions and may benefit from this due to its affordable pricing and strong inventory management. Consensus expects sales and EPS CAGR of 15% each in the next two years.
O’Neil Capital Equipment Sector Weekly
Polycab India (POI.IN): Reported Q2 FY22 (ended September 2021) results. The company beat revenue (+48% y/y) estimates by 14%, while
EPS (-10% y/y) missed estimates by 4%. We recommend that investors add to positions as the stock retakes support along its 50-DMA on
above average volume.
O’Neil Capital Equipment Sector Weekly
SMC Corp (SMCC.JP; $47B market cap; $95M ADV): We added SMC to our Developed Markets Focus List as the stock broke out of a stage-one 30-week consolidation. SMC is a global leader in pneumatic control equipment with a 38% market share and may benefit from the increased demand driven by factory automation trends. It has also invested heavily in expanding its manufacturing capability, inventory management, and R&D. Consensus expects a revenue CAGR of 13% and EPS CAGR of 16% over FY20–22. Click here for the detailed note
Jul 16, 2020 – Weekly Best Ideas (HELE, SOPT.HK, COST)
Join our analysts for our Weekly Best Ideas webinar, where they discuss the current outlook for global markets from an O’Neil perspective and delve into the best actionable stock ideas of the week.
US Focus
The U.S. market is in a Confirmed Uptrend. The S&P 500 held support along its 21-DMA this
week before rallying and closing right at resistance along its downward trending channel line. The
next level of resistance is 3,233. The Nasdaq continues to constructively trend within a channel
which is rising into 11,000. Near-term support for both indices remains the 10- and 21-DMA.
Distribution now stands at five and two days, respectively, with two days expiring on the S&P 500
and one on the Nasdaq next week
Won Global View
The U.S. market remains in a Confirmed Uptrend. The S&P 500 and Nasdaq regained strength, primarily across leadership, after Tuesday’s downside reversal. Short-term support remains at the 10-DMA (S&P 500: 3,126; Nasdaq; 10,198), followed by the rising 50- DMA on the S&P 500 and 21-DMA on the Nasdaq. Distribution remains at six and three, respectively, with one day expiring on each index after the close.
