Daikin Industries: Window Of Opportunity Closed Quickly, But Business Performing Well

 

I liked Daikin (OTCPK:DKILY) (6367.T) on a relative valuation basis back in June as a way of playing a generally expensive HVAC-R sector, but I didn’t expect a better than one-third return in under three months, and investors definitely liked the strong fiscal first quarter results from Daikin. Looking at a longer-term basis, though, Daikin has been less impressive since my October 2020 write-up, having outperformed the S&P 500, the wider industrial sector, and Lennox (LII), but lagging Carrier (CARR), Johnson Controls (JCI), and Trane (TT) on what I believe is a perceived lack of equivalent leverage to green commercial HVAC demand.

I no longer see Daikin as especially undervalued, but I do still like it on more of a “first among equals” basis, as I think the market still underestimates the company’s leverage to green retrofits in Europe and the U.S., as well as potential share gains/margin leverage in the U.S. residential business, and potentially more leverage to its internal R&D efforts.

 

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Daikin Industries: Window Of Opportunity Closed Quickly, But Business Performing Well