Caterpillar And Weir Strike A Deal For Weir's Oil & Gas Operations

Less than a month ago, I speculated in an article on Caterpillar (CAT) that the company could be a natural suitor for Weir Group’s (OTCPK:WEIGY) Oil & Gas business, and now we have the announcement of the deal. Caterpillar and Weir announced on the morning of October 5 that the two companies came to an agreement for the cash sale of the business to Caterpillar.

This looks like a win-win to me for both parties, though perhaps a more clear-cut win for Weir Group. Weir wanted out of the oil & gas market and this deal gives them a clean exit and the freedom to restructure as a pure-play on mining and aggregates. For Caterpillar, management has wanted to build up its oil/gas pumps business, and Weir will bring additional product and service leverage opportunities beyond that. The major “but” for Caterpillar is the timing and scale of an eventual recovery in North American onshore oil/gas drilling activity.

 

Read more here: 

Caterpillar And Weir Strike A Deal For Weir's Oil & Gas Operations

The Street Seems Ahead Of The Curve On Caterpillar's Recovery

First things first – Caterpillar (CAT) is a great company. While it operates in deeply cyclical markets and has had to withstand incoming competitive entrants from China, CAT has an almost-impossible-to-beat global distribution network and incredible brand value, not to mention leading share in a large portion of the markets where it chooses to compete and excellent margins relative to most of its competitors.

The issue I have today is a combination of valuation and Street expectation. I believe non-residential construction is likely to weaken in North America and Western Europe in 2021, and that weakness could persist into/through 2022, and I’m likewise not so bullish on near-term demand in the mining or energy sectors. With Caterpillar already trading ahead of sector trough multiples, and recent data not exactly supporting a robust near-term recovery, I’d prefer to wait for a better opportunity.

 

Follow this link to the full article: 

The Street Seems Ahead Of The Curve On Caterpillar's Recovery

Improving End-Markets And Market Share Not Enough For Cummins

Investors are definitely conflicted about machinery stocks these days, with mining and ag doing well, but a lot less enthusiasm for construction and trucking as investors worry about how the end of the cycle will play out. I didn’t see enough upside in Cummins (CMI) to want to dive in back in late May, and the market-lagging return since then doesn’t exactly have me regretting that call (though Cummins has done comparatively better than most heavy machinery names over that time).

I can’t say that I feel all that differently about Cummins now. The North American truck cycle looks like it has longer legs (into 2019), but that doesn’t really change the fundamental long-term valuation picture. Likewise with the long-awaited recovery in power gen and strength in markets like mining and oil/gas. Although the shares do look a little undervalued on a near-term basis and I like the company’s ongoing moves to invest in electrification products/technology, I just don’t see the upside to warrant taking a new position now.

Read the full article here:
Improving End-Markets And Market Share Not Enough For Cummins

Mining And China Seem To Be Supporting Komatsu

Komatsu (OTCPK:KMTUY) (6301.T) has been lagging peers and rivals like Caterpillar (CAT) and Hitachi Construction Machinery (OTCPK:HTCMY) over the past couple of years, despite solid order trends at Komatsu, good initial results in its automation efforts, and further synergies to be gained from the Joy Global deal. Over the last couple of months, though, Komatsu shares have perked up a bit and risen more than 10% since my last update, on renewed enthusiasm for the mining business and the Chinese construction market.

Komatsu still looks a little undervalued, but the company has a lot riding on expanding its mining business and achieving those hoped-for synergies in the mining business. Although the construction business isn’t done yet for this cycle, the mining business really needs to step up for the shares to keep moving higher.

Read the full article here:
Mining And China Seem To Be Supporting Komatsu

Komatsu Sliding Despite Ongoing Order Growth

Even though many companies in the mining industry are saying the capex recovery is only just starting, and companies in the construction space still see more upside for equipment demand, the shares of major equipment manufacturers have been reflecting a very different assessment. Komatsu (OTCPK:KMTUY) shares are down about 15% since my last update in the spring of this year, and down 20% year-to-date though up about 12% over the last year, as investors have been selling down Caterpillar (CAT), Hitachi Construction Machinery (OTCPK:HTCMY), Sany, and Manitowoc (MTW) on worries about cyclical demand and margin pressures from input costs (namely steel), not the mention the risk of accelerating global trade tensions.

As it concerns Komatsu, I think the year-to-date performance might be a little overdone. I do have some concerns about slowing construction demand, but I think Komatsu is looking at a good opportunity in the mining business, and I think the company’s significant investments in automation (both external and internal) will pay off in the coming years. With what appears to be a valuation that is already baking in a lot of weakness, I think these shares are worth another look today.

Continue here:
Komatsu Sliding Despite Ongoing Order Growth

The Market Doesn't Seem So Pumped About Weir

Weir Group (OTCPK:WEGRY, WEIR.L) got hit hard on the simultaneous declines in oil/gas and mineral/mining capex, and the company is now benefiting as spending recovers strongly in both markets. Although the bulk of Weir’s business is, and has virtually always been, its minerals business, the shorter-cycle oil/gas business tends to be the tail that wags the dog, with investors putting a lot of energy into worrying about near-term completions metrics, frac fleet spending, and market share trends.

Although I do have some longer-term market share concerns about the oil/gas business, I believe Weir is likely looking at a good stretch here of oil/gas and minerals order growth. I thought the shares offered about 5-10% upside back in late May of 2017, and the local shares are up about 10% since then. I still see a little upside from here, but investors should note the propensity for short-term excitement/worry about U.S. onshore activity to move the stock.

Read more here:
The Market Doesn't Seem So Pumped About Weir

Komatsu Offers More Than An Upswing In Mining

As often happens with companies that serve deeply cyclical end-markets, the timing and magnitude of the swings in Komatsu's (OTCPK:KMTUY) end-markets have defied expectations. While improving construction and mining markets have been part of the Komatsu story for a while now, the strength of the recoveries (especially in mining) has exceeded expectations, as has Komatsu's operating leverage and execution.

With major mining companies only starting to reinvest in equipment and plenty of room to grow in automation-driven investments, I believe Komatsu could still offer some upside from here. The shares aren't cheap on a free cash flow basis, but that's not all that unusual and a forward multiple in line with long-term averages suggests 10% more upside from here with the possibility of further upward revisions.

Read more here:
Komatsu Offers More Than An Upswing In Mining

Early-Stage Recoveries And Rebuilt Optimism Supporting Komatsu

It looks as though the worst has passed in both the mining and heavy construction equipment markets. With that, both Komatsu (OTCPK:KMTUY) and Caterpillar (NYSE:CAT) have been stronger, with the former up about 25% from my last article on the company and not really having given investors that buy-on-the-pullback opportunity I was hoping for. Komatsu has seen consistently better demand for its mining machinery in recent quarters, and although operating hours have been choppy around the world, the situation is quite a bit healthier than it has been over the last two to three years.

Komatsu shares seem to be pricing in a pretty healthy recovery. I don't really have a problem with that, but it does lead me to wonder how much upside remains. Construction equipment demand seems a little muted, though progress on a huge infrastructure stimulus bill in the U.S. could significantly improve the outlook in the United States. With mining, companies are getting back to capex spending again, but thus far, they have been proceeding cautiously. My base-case assumptions for Komatsu haven't changed all that much, and I think the company could deliver high single-digit revenue growth over the next five years with meaningful improvements in cash flow. Priced to deliver a high single-digit return, Komatsu is still arguably a worthwhile idea to consider for a GARP portfolio.

Click here for the full article:
Early-Stage Recoveries And Rebuilt Optimism Supporting Komatsu

Seeking Alpha: Komatsu Lacking A Spark

There's really not much good news to celebrate among the makers of heavy machinery for construction and mining. Joy Global (NYSE:JOY) has been pummeled over the last year, and Komatsu (OTCPK:KMTUY), Caterpillar (NYSE:CAT), Sany, Hitachi Construction (OTCPK:HTCMY), Sandvik (OTCPK:SDVKY), and Atlas Copco (OTCPK:ATLKY) all pretty much occupy the same real estate in the down 20%-30% range. In fact, most of these companies' shares have pretty closely tracked the CRB Index down over the past 12 months.

I continue to think that Komatsu is a strong company within the heavy machinery sector, but it rarely makes a lot of sense to buy the best house on the block when the entire neighborhood is in flames. To that end, it's hard to look past the ongoing declines in machine utilization in Japan, China, and North America and the grim outlook for mining capital spending. While Komatsu shares do seem undervalued based on prior valuation ranges, it's hard for me to see what drives better earnings and more investor interest in the near term.

Read the full article here:
Komatsu Lacking A Spark

Seeking Alpha: Wärtsilä Down On Power ... For Now

These are challenging times for Wärtsilä (OTCPK:WRTBY) (WRT1V.HE), one of Finland's largest and oldest industrial companies. Orders for drillships, semi-submersibles, and supply ships have cratered alongside oil prices, and the demand for new cargo ships is hardly better. With that, the company's leading position in marine engines, automation, and propulsion doesn't look all that impressive. Likewise in the energy business, as emerging market orders for flexible baseload gensets has plunged on currency and commodity weakness.

It looks too early to be bullish on these shares, but I think this is a good time to get up-to-date with due diligence on companies like Wärtsilä. The company's biggest original equipment markets are weak, but the lucrative service business will help tide it over, and cyclical markets don't stay down forever. When demand for large ocean-going vessels and flexible electrical gensets recovers, Wärtsilä's niche leadership and operating leverage should serve investors well.

U.S. investors should note that Wärtsilä's ADRs are not especially liquid. Many brokers now support international trading, and there is more liquidity to be found buying these shares on the Helsinki Stock Exchange.

Follow this link to the full article:
Wärtsilä Down On Power ... For Now

Seeking Alpha: Komatsu Looking For A Foothold

Six months ago, I thought investors could afford to wait on buying into Komatsu (OTCPK:KMTUY) (6301.TO), as this Japanese manufacturer of construction and mining equipment was likely looking at a multiyear process of demand repair. I don't think investors have really missed out on much - the roughly 8% drop in the ADRs since then is not catastrophic (certainly not relative to Joy Global's (NYSE:JOY) 31% drop), but investors would have done better in Caterpillar (NYSE:CAT), Volvo (OTCPK:VOLVY), Terex (NYSE:TEX) or by avoiding the space altogether.

Looking ahead, there's arguably a little more value in the shares but the outlook still isn't promising. There's a real threat that U.S. equipment demand isn't going to get much better and that growth in Europe won't offset weakness in Asia and particularly China and Japan. Komatsu does have an opportunity to stand out on a relative basis with its automation initiatives and internal cost reductions, but I'm not sure there's enough upside to make the wait a comfortable one.

Read the full article here:
Komatsu Looking For A Foothold

Seeking Alpha: Is It Time To Start Thinking Recovery For Komatsu?

The outlook for the construction and mining industries hasn't gotten much better, and with that both Caterpillar (NYSE:CAT) and Komatsu (OTCPK:KMTUY) have posted pretty uninspiring performances. While the environment for mining equipment is still under pressure from weak prices and shrinking capex budgets, and the construction market in key Komatsu markets like China and Japan is hardly great, Komatsu is investing in long-term innovation, maintaining a focus on margins, and positioning itself for the eventual recovery.

Since my last piece on Komtasu, these shares have outperformed Caterpillar, Joy Global (NYSE:JOY) and Terex (NYSE:TEX) by a pretty healthy margin. Although Komatsu isn't particularly well-positioned for a construction recovery in North America (or Europe), a turnaround in the emerging markets would be a different story. I don't think investors need to rush to buy this stock, but the valuation isn't too bad and I think the company's emphasis on its more lucrative parts/service operations and long-term innovation could pay dividends down the road.

Read more here:
Is It Time To Start Thinking Recovery For Komatsu?

Seeking Alpha: Commercial Vehicle Starting To Show Operating Leverage

This year has seen pretty solid improvement in the North American heavy truck market, with full-year order levels steadily improving along the way. That's good news for Commercial Vehicle Group (NASDAQ:CVGI) as although the company is trying to diversify its revenue base, North American Class 8 truck demand is still the key driver. Better still, a new efficiency-minded management philosophy is starting to produce real results and improving margins. In a market that no longer offers many cheap plays on commercial vehicles, Commercial Vehicle still offers enough upside to worth a closer look.

Read more here:
Commercial Vehicle Starting To Show Operating Leverage

Seeking Alpha: Komatsu's Relative Performance Gap May Not Be Unfair

To start with, I think Komatsu (OTCPK:KMTUY) is one of the better-run heavy machinery companies in the world, and I think the company's strategy to differentiate itself with technological innovation (particularly in automation) is a very good move. That said, the stock has notably lagged Caterpillar (CAT), Joy Global (JOY), Terex (TEX), and Atlas Copco (OTCPK:ATLKY) over the past year, and I don't necessarily think that Komatsu is a great catch-up trade today.

Continue reading here:
Komatsu's Relative Performance Gap May Not Be Unfair

Seeking Alpha: Atlas Copco Is Great Everywhere But In Value

Sweden's Atlas Copco (OTCPK:ATLKY) has long been one of my favorite industrial companies, and it remains so today. The shares have done so-so since I last wrote about them for Seeking Alpha; hit by the severe downturn in mining, the shares are up about 20% over that stretch - roughly on par with Caterpillar (CAT) and better than Sandvik (OTCPK:SDVKY), but only about half the returns of Ingersoll-Rand (IR) or the S&P 500.

Even with that underperformance, and even though I like the company, I'm not as bullish on the shares as I wish I could be. Mining likely is troughing, but even an estimate for 10% future annual free cash flow growth only gets me to about par with today's share price. I would definitely keep this name on a watchlist and stay alert for pullbacks (the shares rarely get very cheap and the windows don't stay open for long), but today's valuation seems pretty fair to me.

Read more here:
Atlas Copco Is Great Everywhere But In Value

Seeking Alpha: Titan Machinery Needs More Than Short Covering

It's always worth remembering that there is more to a stock's performance than just the reported financials. In the case of Titan Machinery (TITN), fiscal fourth quarter results were not all that greater and there are still real issues with the business model. Investors liked what they heard about cost-cutting in the next year, though, and with Yahoo! Finance showing about one-third of the float held short, it looks like a short squeeze helped catapult the shares last week.

I saw value up to the high teens on a cash flow-basis last time I wrote, and I still see a similar fair value after this latest quarter. I don't like the model, though, and I think investors have better options for playing bullish outlooks for agriculture and/or construction equipment demand.

Continue here:
Titan Machinery Needs More Than Short Covering

Seeking Alpha: Sentiment May Be Gaining On Allison Transmission

I was bullish on Allison Transmission (ALSN) in early October ("Allison Transmission A Stand-Out In Multiple Ways"), and I cannot complain about the 18% move since then as it has outpaced the S&P 500 and other truck component companies like Cummins (CMI) and Dana (DAN). Management has recently confirmed that improving North American truck orders are starting to flow through to their order books and that the fracking market is coming back to life.

I still really like the long-term idea of Allison as a share-gainer in the commercial vehicle transmission market, but I am a little concerned that analyst and investor enthusiasm is running ahead of the underlying vehicle markets. A 12x EBITDA multiple only gets the stock to about $30 and that's a pretty strong multiple relative to the company's likely growth rate. There is certainly a chance that the recoveries in Allison's markets will lead to outperformance and/or that the company will gain share in OUS markets faster than expected, but I don't see Allison as quite the bargain it was about six months ago.

Read the full article at Seeking Alpha:
Sentiment May Be Gaining On Allison Transmission

Seeking Alpha: Has Joy Global Bottomed Out?

Cyclical stocks have a way of outdoing expectations both for good and bad. That makes it tricky to feel all that confident that Joy Global (JOY) is bottoming out, particularly when there are still long-term issues with the coal market that makes up a large percentage of the company's equipment revenue base. What Joy Global has done, though, is significantly improved its manufacturing process and shifted its capital focus from M&A to returning cash to shareholders. Provided that coal isn't in perpetual decline as a global energy source, these shares could still have some appeal even after a 20% run from recent lows.

Read more here:
Has Joy Global Bottomed Out?

Seeking Alpha: Commercial Vehicle Making Progress, But It's Not Pretty

The turnaround story at Commercial Vehicle Group (CVGI) is moving along at a painfully slow pace, but is moving along. New senior management (both the CEO and CFO have been at the company less than a year) has a lot on its plate, ranging from shifting the R&D process to a more customer/application-specific approach to enhancing productivity to positioning the company for growth in large markets like agriculture and Chinese heavy vehicles.

All of this takes time, and not all of the factors necessary for better results are within management's control. While I wouldn't overlook other quality stories leveraged to commercial vehicles, like Cummins (CMI) or Eaton (ETN), I'm still willing to wait and see if new management at CVGI can deliver better results as the truck and construction cycles turn around. I think reasonable fair value (considering the risks and cyclicality) is around $9.50 today, but simply de-risking the story to a point where Commercial Vehicle would be on par with companies like Allison (ALSN), Cummins, and Eaton would add over $2 per share to fair value.

Read more here:
Commercial Vehicle Making Progress, But It's Not Pretty

Seeking Alpha: Oshkosh's Self-Improvement Efforts Moving The Needle

Couple improving conditions in the largest-end market and solid progress with internal self-improvement efforts, and you have Oshkosh (OSK) handily beating the Street's fiscal first quarter estimates and sitting close to a 52-week high. With the shares having doubled the return of the S&P 500 over the past year, it's hard to say that Oshkosh's performance has gone unnoticed, but if construction really is turning the corner and the company's MOVE plan stays on track, these shares should continue to beat the market.

Read the full article here:
Oshkosh's Self-Improvement Efforts Moving The Needle