By: Rob Wertheimer
Earnings are presenting opportunities in Machinery. The selloff is happening in broad strokes, and not properly distinguishing cycles. We are highlighting two divergences. End markets underlying CAT’s businesses, and half of Cummins, are coming up to midcycle from deep trough, and the stocks trade at 11-13x 2018 and 10-11x 2019. AGCO end markets have less tailwind, and the shares trade at 16x 2018. We downgrade AGCO shares to Underweight from Neutral, lowering PT to $63.