Okay, that title is admittedly a little harsh, particularly as there’s not really a core fundamental issue at Trane (TT), but if a company is going to use a marketing slogan like “It’s Hard To Stop A Trane”, it does invite a little ribbing when things turn down for the stock, and such has been the case at Trane, with the shares down around 20% since my last update. That decline is quite a bit steeper than the 4% decline in the industrial sector and the flattish performance of the S&P 500, but most of the peer group (Carrier (CARR), Lennox (LII), and Daikin (OTCPK:DKILY)) is clustered down there with Trane, while Johnson Controls (JCI) has outperformed.
I understand at least some of the concerns hitting the stock – current expectations are very much reliant on supply chain improvements in the back half of the year that will lead to better output and margins, and the North American residential replacement market is likely to see a reset down to the long-term replacement trend line after two strong years.
Still, I’m starting to think the reaction may be overdone, particularly with a healthy U.S. residential new-build market and ongoing opportunities to leverage global efficiency initiatives through the commercial HVAC business. My biggest concern now is no longer valuation but theme rotation and “fighting the tape”; owning yesterday’s hot thing can be a painful experience as seemingly cheap-looking stocks get even cheaper.
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