By: Rob Wertheimer
There is a broad and unusually large premium being paid for stable growth across the market, and a steeper than normal discount for cyclicals. That’s evident in machinery, which trades at a record discount to the multis. Within multi-industry, the more consistent growth side, or compounders, have further separated, trading up from multiples in the 20ish range all the way up to near 30x forward PE. Though the spread is wide, we don’t sense a consistent desire among investors to buy the cyclical end, at least ahead of expected estimate cuts. Trimble may be worth another look, though. Investors perceive it to be more on the cyclical side of this valuation divide, but its mix has improved dramatically over the past several years, and the company is now majority software and recurring revenues.