SKF's Rally Into 2023 Seems Overdone

Industrials have certainly recovered of late. With investors feeling more confident that the impending downturn will be mild and that rate hikes are close to an end, the industrials have climbed about 20% over the last three months, and Sweden’s SKF (OTCPK:SKFRY) has gone along for the ride, though the shares are still down about 20% over the last year.

I think this rally may prove to be too much too soon. With global PMIs falling and the company likely to see weaker end-market demand coupled with price/cost pressures, 2023 isn’t going to be an easy year and if the market is wrong about a mild slowdown, there could still be meaningful downside to estimates. I don’t think SKF is particularly expensive now (and my near-term expectations are below sell-side averages), but I see a relatively unfavorable risk/reward balance going into the fourth quarter reporting season.

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SKF's Rally Into 2023 Seems Overdone