Schneider Slowing, But May Be Better Positioned For The Downturn Than The Street Thinks

Concerns have been growing about the health and durability of the short-cycle upturn, and the performance of the stocks of companies like Schneider Electric (OTCPK:SBGSY) have reflected at least some of that. While a strong post-earnings run has lifted Schneider’s performance over the average industrial and peers like Eaton (ETN) and Rockwell (ROK) since my last update, the shares spent most of the second half of 2018 lagging broader industrial indices.

I’ve made no secret of my concerns about a slowdown in the global economy, and as it pertains to Schneider, I am concerned about the near-term outlook for non-residential construction and factory automation. On the other hand, Schneider isn’t as short-cycle-dependent as in the last cycle, and the company’s position in process automation, oil/gas, grid automation, and data center could help offset some of the weakness. With a long-term growth outlook roughly similar to Emerson (EMR), and sandwiched between Eaton and Rockwell, I do think these shares are undervalued, but 2019 could be a tricky year for the stock as sentiment has seemingly shifted to a point where there is a “show me” story.

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Schneider Slowing, But May Be Better Positioned For The Downturn Than The Street Thinks