U.S. Multi-Industry: Post-pullback, potential plateau in orders / sales momentum may cap the rebound scope; Downgrade KMT to UW from EW

Research evidence excerpt

U.S. Multi-Industry: Post-pullback, potential plateau in orders / sales momentum may cap the rebound scope; Downgrade KMT to UW from EW

Barclays | U.S. Multi-Industry

We see attractive opportunities in FPS, HON, LII, MMM, NVT, RAL, while we see a less

favorable set-up for AME, DOV, ETN, HUBB, KMT, OTIS.

In this report we focus on four main topics:

1) Sector allocation:

The MI sector overall is now performing in-line with the S&P YTD, after a recent pullback. There

is likely to be a rebound near-term (at least in absolute terms, supported by earnings growth

which we est. is likely to reach the LDD% over the NTM), but we do not expect the sector to

outperform the S&P for 2026 as a whole – we retain a Neutral industry view.

As we discuss below, the current industrial backdrop resembles the 2017-2018 period / a

classic 'mid-cycle' period in many respects. During such mid-cycle periods (ISM

Manufacturing PMIs moving slowly higher in the mid-50s etc), the sector typically

performs in line with the S&P.

2) AI names:

- We think recent backlog trends and Hyperscaler capex updates underscore that there is

considerable potential upside to Street revenue estimates for most electricals and

Datacenter-weighted HVAC names for the next 12-18 months (for this reason, we recently

raised our EPS estimates on VRT, which are now MSD-HSD% above the Street for 2027+; we do

not think our estimates are particularly aggressive), and hence EPS estimate revision

momentum should remain positive through the year for most of them (not for all though, given

differing operational execution on operating margins);

- However, orders growth y-o-y is likely to decelerate in the 2H26, given very tough 'comps' –

for some names (NVT), we see this happening as soon as Q3;