CoTD: Where are Expectations the Highest?

Research evidence excerpt

CoTD: Where are Expectations the Highest?

IdeaMindividual equities below.

What is firmer organic growth worth? While it is too early for the equities to get

credit, we believe our US multi-industry coverage is positioned for stronger + more

durable growth vs history behind our $10T US Reshoring thesis (Deep Dive). This

is the opportunity and with the group positioned for positive revisions, we think the

premium multiples are warranted (link). Exhibit 5 builds out an EPS CAGR for two

identical companies with the only difference that one is growing MSD organic vs the

other HSD organic. If we run a DCF on the EPS CAGR, we find that there is nearly a

10-turn difference in fair value multiple at the different growth rates. This

highlights the re-rating opportunity for US Industrials where we see a return to

GDP+ market growth, a sharp improvement following two decades of roughly no

growth and lifting the growth profile for the entire US Industrial complex.

Thoughts on valuation across the individual equities:

VRT: With leading-edge orders annualizing ~$30B and NTM revenue forecasted ~

$14B, the premium is warranted and positive revisions are anticipated (link).

Americas margins remain the clearest source of near-term upside in the model.

RAL: With only ~12mo of trading history, relative valuation time series is less

reliable. But with end markets + RAL operations inflecting, we think the recent re-

rating is well warranted and find valuation attractive vs peers (link).

GWW: While we remain positive on EPS revision pathway into Q2 EPS (link), the

premium multiple suggests revisions are needed for further upside.

MMM: Premium suggests a pickup in growth is expected and the debate is whether

2H is tracking for LSD (2-3%) or MSD (4%+). While we are skeptical of sustained