Research Report
December 10, 2018

CGNX: Best-in-Class Industrial Tech Name

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By: Scott Davis Cognex is the latest addition to our industrial tech coverage alongside names like TE Connectivity (TEL) and Trimble (TRMB). We love the story and are believers in…

Research Report
December 7, 2018

Is This Peak Growth for FAST?

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By: Jake Levinson FAST’s growth of late has been solid, with November’s 12%+ the 18th consecutive month into double-digits. Going into 2019, however, we expect decelerating growth rates for many…

Research Report
December 4, 2018

Mining: Better Growth on Worse Resource

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By: Rob Wertheimer  Most folks don’t think of CAT as a growth stock these days. We see revenues as bouncing back up to normal, based on a look at major…

Research Report
December 3, 2018

EMR: The Case for Buying Here

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By: Scott Davis Emerson stock has sold off (like most industrials) on concerns over macro weakness, tariffs, and lower oil prices.  And our call volume on the name has turned…

Research Report
November 26, 2018

Net Cash and A Widening Machinery Gap

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By: Rob Wertheimer  Machinery stocks continue to trade at extreme weak valuations, but with improving cash positions and probably lower tariff risk.  The best machinery franchises trade at near record…

Research Report
November 19, 2018

CFX: Hail Mary Deal; Upgrade to Neutral

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By: Scott Davis When we downgraded CFX to UW back in September, we were concerned about a structurally challenged portfolio, deteriorating earnings quality/FCF and a stock valuation that didn’t seem…

Research Report
November 13, 2018

Melius Macro Views: Capex Theme is Still on Track

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By: Scott Davis  Folks, in the link below please find our latest Melius Macro Views slide deck. Key takeaways below: ​​​​​​​ 3Q earnings saw widest range of results we can…

Research Report
November 12, 2018

Ag Cycle: Checking in on Farmer Sentiment in Three Data Driven Ways

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By: Rob Wertheimer  Despite the obvious risk of soybeans piling up under tariff pressures, we’re not seeing any real signs of strain in US ag equipment. We track some datasets…

Research Report
October 16, 2018

GWW: Coming Back to Earth

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By: Jake Levinson  Grainger has quickly become a high expectations story after a string of solid quarters. Even the normally sleepy sell-side has caught up to reality, with consensus already…

Research Report
October 10, 2018

FAST: The Tariff Pain Trade

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By: Jake Levinson We’re expecting a lot of noise across the group this quarter, and our first print from FAST is a poster child. Notably, gross margins were 50 bps…

Research Report
September 20, 2018

Defense: The Payments Problem

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By: Carter Copeland  Twenty-five years ago, the fate of the US Defense industry changed forever when the Pentagon informed a large group of contractors that the pressures of declining budgets…

Research Report
September 6, 2018

Boeing: On the Road to Recovery?

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By: Carter Copeland  While BA’s Investor Day was littered with several thesis-confirming observations to highlight (on margins, productivity, cultural change), the event was dominated by a focus on the well-publicized recent challenges around…

Research Report
July 17, 2018

Why Culture Matters: Simplicity is an Investible Theme

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By: Scott Davis The vast majority of Wall Street analysts spend their careers trying to find mispricings in the valuation of a stock versus the quality and value of the underlying assets…

Research Report
July 16, 2018

NOC: Is It the Leader or the Organization?

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By: Carter Copeland  Many years ago, I had a friend tell a CEO over dinner that he was certain that the CEO alone accounted for a $2 billion drag on the…

Research Report
July 5, 2018

Baseball & Portfolio Management: Part 2

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By: Scott Davis  In our last piece on portfolio management we argued that the money management industry should take a step into the 21st century and adopt data and data analytics into…

Research Report
May 31, 2018

Thoughts on Trimble Investor Day

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By: Rob Wertheimer  Trimble’s 2018 investor day produced some incremental clarity on the financial output of the strategy; essentially targets that are close to consensus estimates. A positive is that…

Research Report
May 29, 2018

Trimble Initiation: Overweight the Future

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By: Rob Wertheimer  We are launching coverage with an Overweight rating, our second highest. Trimble’s business and revenue model are the future of industrials, and both are foreign/hard to understand….

Research Report
May 22, 2018

CAT Leading on Growth and Execution

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By: Rob Wertheimer  Deere’s report more or less closed out machinery earnings season that was generally good for machinery, marking the third quarter of strong organic growth. We show growth…

Research Report
May 20, 2018

Deere vs CAT, A Tale of Two Quarters

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By: Rob Wertheimer  Deere’s share price reaction, up 6%, to earnings that missed consensus, and which left a back end loaded year, if nothing else shows the market’s desire to…

Research Report
May 15, 2018

Defense: A Framework for Buying the Dips

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By: Carter Copeland  Last week’s Iran-related news has stabilized the trading in Defense with the group bouncing off recent post-quarter lows. We’ve fielded more incoming requests for data on defense…

Research Report
May 11, 2018

Mining Equipment 1Q18 Sales and Cycle Views

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By: Rob Wertheimer  Bottom line as of 1Q18: total industry has 30% upside to replacement versus the 1Q run rate. That’s relative to the supercycle 2004-2014 average as a replacement/starting…

Research Report
May 8, 2018

Rental Mispricing on Weather/Noise

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By: Rob Wertheimer  URI shares fell about 13% around 1Q earnings, and haven’t recovered much since. That reaction increasingly seems like a selloff on short term volatility, weather, and noise…

Research Report
May 7, 2018

Trade Wars, Soybeans and Confidence

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By: Rob Wertheimer  China’s cancellation of soybean orders and the continued risk of similar actions poses a modest threat to NA farm equipment manufacturers. That’s not because someone else will…

Research Report
May 7, 2018

Where the Market Misprices Cycles

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By: Rob Wertheimer  We see opportunities where machinery cycles diverge more widely than market prices, most particularly on cumulative years of sales. A very simple summary is below. We have…

Research Report
May 7, 2018

Lessons Learned from Getting a Stock Very Wrong: GE

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By: Scott Davis …In the world of Wall Street everyone makes mistakes; in fact, being wrong nearly half of the time is considered exceptional.  However, being associated as a bull…

Research Report
May 7, 2018

Lessons Learned from Getting a Stock Very Wrong: GE

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By: Scott Davis …In the world of Wall Street everyone makes mistakes; in fact, being wrong nearly half of the time is considered exceptional.  However, being associated as a bull…

Research Report
May 4, 2018

ITT: Still a Top SMID Idea

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By: Scott Davis ITT was one of only 4 Buy-rated names in our coverage at our Oct 2017 launch, and the tenets of our thesis remain largely unchanged. ITT is…

Research Report
May 4, 2018

HII: Communication Breakdown

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By: Carter Copeland  Poor signaling played a significant role in the 10+% drawdown in HII shares yesterday. Q4 results in February marked a major change in HII’s external communications around…

Research Report
May 4, 2018

GTES: Cyclical Upside on the Cheap

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By: Scott Davis Gates put up a solid quarter on what were otherwise low expectations going into the print. Should be enough to help alleviate pressure on a stock that’s…

Research Report
May 2, 2018

CMI Revenues Rising, Valuation Falling

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By: Rob Wertheimer  Cummins shares trade at 10.7x our 2019 estimates that are ~midcycle, though following a high period in truck sales. We don’t have margin gains into 2019, just…

Research Report
May 1, 2018

LLL: Deserving Attention in the Defense Selloff

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By: Carter Copeland  Is anything buyable in defense here? I don’t want to be tone deaf and ignore the fact that defense is continuing to break down (for reasons we…

Research Report
May 1, 2018

EMR: High Conviction Stock Idea

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By: Scott Davis We upgraded EMR to our highest rating (Buy-Accumulate) when we launched in Oct 2017. It’s been a middle-of-the-pack stock since then, nothing to brag about. We love the set-up,…

Research Report
May 1, 2018

XYL: One of Our Best Growth Stories

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By: Scott Davis XYL put up another solid quarter, though this is not a market that’s been kind to industrials, regardless of how good quarterly prints have been. Still, 7%…

Research Report
May 1, 2018

1Q18: Emissions Issue Resurfaced, Quantified, Revenues Surprise up

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By: Rob Wertheimer  How should investors treat the quality issues? 1Q18 results had an incremental $187mm or $0.87 charge on CARB/EPA issues related to 2010 to 2015 engines, where degradation…

Research Report
April 27, 2018

Defense: A Crack in the Armor

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By: Carter Copeland  What’s going on with defense? Defense stocks are down ~7% on average over the last three days and there’s a lot of head-scratching going on. As a…

Research Report
April 26, 2018

TEL: Guidance Set For Future Beats

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By: Scott Davis Our positive rating on our initiation of TE Connectivity was based on the thesis of strong secular content growth in Transportation, better than expected macro tailwinds for Industrial…

Research Report
April 25, 2018

Misunderstanding “High Water Marks”

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By: Rob Wertheimer  CAT shares reacted negatively to the earnings call commentary, one component of which was a comment that 1Q18 EPS, which was sharply better than expected, would be…

Research Report
April 24, 2018

3M: Downside of Extreme Diversification

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By: Scott Davis 3M is a fascinating company, incredibly unique in quality of product, established channels, pricing power, and geographic reach.  Its products sell across a very wide range of…

Research Report
April 24, 2018

LMT/Defense: Must’ve Already Been in the Price

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By: Carter Copeland  We sensed a growing desire among the fast money crowd to play LMT reversion vs. RTN/NOC into the quarter, which we think was behind much of the…

Research Report
April 24, 2018

ST: Back to Above Peer Growth

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By: Scott Davis The knock on ST has been growth below close peers like TE Connectivity and… also growth below industrial peers that we cover.  In a cyclical upturn, ST…

Research Report
April 24, 2018

Context on $2.00 Outlook Raise From 1Q18

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By: Rob Wertheimer  CAT’s 30% earnings beat and $2.00 guidance range in 1Q are why we focus on the direction of revenue, and why we keep writing on the theme…

Research Report
April 23, 2018

BA/AIR: What Almost No One Realizes About Aircraft Costs

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By: Carter Copeland  Comparing/contrasting BA/ERJ with AIR’s deal with Bombardier: If BA’s transaction for Embraer gets done, we presume the press will write that it’s a similar move to the…

Research Report
April 23, 2018

Rental Widening Structural Advantages, High Growth, Low Valuation

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By: Rob Wertheimer  Ashtead noted at its investor day that it can grow revenues 7-10%, and using cash generated, have enough cash remaining to buy back 10% of the company…

Research Report
April 23, 2018

SWK 1Q18: Volatility Creates Opportunity

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By: Rob Wertheimer  SWK shares fell almost 7% on a quarter that was in line, with our call flow indicating investors had already been appropriately cautious on commodity inflation. That’s…

Research Report
April 23, 2018

HON: Earning a Premium P/E

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By: Scott Davis HON has been a good story for some time now, but investors have largely struggled with core growth results that were middle-of-the-pack at best, and a portfolio…

Research Report
April 23, 2018

GE: Baby Steps Out of the Abyss

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By: Scott Davis GE’s 1Q results will not win any awards but…with a stock below $13 just a few weeks ago, we didn’t need much.  We just needed stability and…

Research Report
April 23, 2018

DHR: Same New Danaher

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By: Scott Davis The knock on the “new” DHR is a company that pays bigger multiples, often seen as too big, for growth rates that are outsized.  The obvious risk…

Research Report
April 23, 2018

URI 1Q18: Rising Rates, Light Utilization, Very Strong Cash

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By: Rob Wertheimer  One way to look at URI results is that the company’s announced $1.25bn share buyback could be done with this year’s excess cash flow after growth capex,…

Research Report
April 23, 2018

Melius Data Analytics: Quarter End Report

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By: Tom Liu Melius Data Analytics aims to leverage data to help clients with their investment process. Completely separate from our fundamental company analysis and uncorrelated to our research ratings,…

Research Report
April 18, 2018

From Tractors to Tech

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By: Rob Wertheimer  Deere’s move from being an implement maker to a tractor maker with its acquisition of Waterloo Gasoline Engine Company in 1918 was a transformational strategic move, that…

Research Report
April 18, 2018

Industrial Tech: Additive Manufacturing

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By: Carter Copeland, Scott Davis & Rob Wertheimer  In our fourth report focused on industrial tech, we take a closer look at additive manufacturing or 3D printing, a set of…

Research Report
April 18, 2018

China Excavator Sales, March

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By: Rob Wertheimer  China excavator sales are surging, up 79% in March, a positive for CAT’s 1Q momentum, and with the underlying details showing a sustained successful strategy in the…

Research Report
April 18, 2018

Estimate + Ratings Changes Spurred by Melius Real PMI

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By: Rob Wertheimer  We are raising our 1Q Cummins revenue estimates to above the current consensus high end, raising our full year as well, and are upgrading Manitowoc (MTW) shares…

Research Report
April 18, 2018

Cranes at Trough

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By: Rob Wertheimer  We have had the same cranes thesis since 2011, that the product is longer lived, with cranes operating for 15-30 years versus 7-15 for other machinery. We…

Research Report
April 18, 2018

Navistar Upgrade

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By: Rob Wertheimer  We are upgrading Navistar shares to Neutral from Underweight, as the investment debate has shifted more strongly to one of industry consolidation, and we do not have a differentiated…

Research Report
April 18, 2018

GE Restatement: The Good, The Bad and The Annoying

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By: Scott Davis GE’s much anticipated 8-K came out after the close Friday. That alone is a statement…Not many great companies put out releases on Friday nights. Restatements are common…

Research Report
April 11, 2018

Rental and Retail and Valuation Gaps

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By: Rob Wertheimer  Over the past 10 years, URI has an EPS CAGR of 17%, while Ashtead/Sunbelt posted 25%. Except for valuation, the model is somewhat similar to a rising…

Research Report
April 10, 2018

U.S. Industrials: China vs. USA – 1950 vs. 2018

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By: Scott Davis The punchline of this piece is that the current trade war risk will heavily weigh on supply chain decisions for the next 10 years or so.  Anyone…

Research Report
April 9, 2018

Melius Industrials Macro Strategy: Tariffs Impacting Confidence

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By: Scott Davis Folks, in the link below please find our monthly Melius Industrials Macro Strategy deck. Key takeaways below: Rising trade risks appear to be impacting investment spend…  …

Research Report
April 9, 2018

Four Idiosyncratic Ideas for a Volatile Macro Setup

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By: Carter Copeland  The current macro environment, driven by the tariff debate, is creating two distinct setups in the broader A&D space: (1) own Defense for safety and certain growth…

Research Report
April 9, 2018

Declining Horsepower Needs and Tillage

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By: Rob Wertheimer  We’ve been writing for five years or so that US and Canada farms have sharply elevated levels of tractor horsepower, relative to history, to recommendations from ag…

Research Report
April 6, 2018

Baseball and Portfolio Management: Radical Breakthroughs and Learnings

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By: Scott Davis The 2003 book Moneyball by Michael Lewis was a true story about “radical” baseball general manager Billy Beane and his use of analytics and technology to drive…

Research Report
April 4, 2018

BA: Initial Take on Proposed Chinese Tariffs

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By: Carter Copeland  The proposed weight limits on commercial aircraft look to purposely single out the 737NG. The NG is Boeing’s current narrowbody offering that is transitioning to the new…

Research Report
April 4, 2018

No Magic Beans: Soybeans and Tariffs

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By: Rob Wertheimer  With the news that China plans to impose soybean tariffs we are adding to our tariff work with a little background on land and production Report Here…

Research Report
April 2, 2018

BAH: Premium Growth for Hire

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By: Carter Copeland  Recently we introduced a new data series that tracks current and historical job postings on the Booz Allen Hamilton website going back 6+ years, in an effort…

Research Report
March 29, 2018

Breadth of Moat in Rental Equipment

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By: Rob Wertheimer  We strongly disagree with the prevailing investor perception on rental company quality, and think that these misperceptions create the largest alpha in our coverage. That’s even given…

Research Report
March 28, 2018

GE: The Next 3 Months of Catalysts

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By: Scott Davis We don’t usually write short-term pieces, but given GE stock volatility we thought we’d provide a few items of interest for investors.  Here are some events that…

Research Report
March 26, 2018

The Earnings Setup – Q1 2018

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By: Carter Copeland  As we do each quarter, we look to month’s end with an attempt to capture and compare where sentiment in our space is most bullish/bearish ahead of…

Research Report
March 26, 2018

Trade Wars and Machinery Opportunities

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By: Rob Wertheimer  As tariff issues grow and shift machinery has continued to trade down, with stock movement lately more in line with beta than with actual fundamental exposure. Since…

Research Report
March 26, 2018

U.S. Industrials: Tariffs & Opportunities

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By: Scott Davis No one seems to want to risk free trade, but behind the scenes many of our CEOs are supportive of some action to level the playing field….

Research Report
March 22, 2018

U.S. Industrials: Spin-offs Return 2x the S&P – We Expect to See Many More in 2018

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By: Scott Davis De-conglomeration continues to be a dominant theme in industrials, with companies across the sector under shareholder/activist pressure to simplify their portfolios.  Investors are increasingly looking to isolate…

Research Report
March 21, 2018

CNHI CEO Rich Tobin to Dover

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By: Rob Wertheimer  A few thoughts on compensation, board engagement, and management retention. CNH Report Here  

Research Report
March 19, 2018

UTX: Heads I Win, Tails You Lose

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By: Carter Copeland  UTX increasingly a consensus long. After our time spent at the UTX Investor Day last week, it’s clear to us that consensus has firmly shifted to the…

Research Report
March 19, 2018

Industrial Tech: Silicon Valley Presence and Board Leadership

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By: Rob Wertheimer  Industrials are naturally disadvantaged when it comes to competing on tech. Our report highlights who is ahead/behind by looking at BoD composition and Silicon Valley presence. Report…

Research Report
March 19, 2018

TEL: Initiating OW – Our Best Electrification Story

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By: Scott Davis TE Connectivity, originally Tyco Electronics pre-2007, should benefit from multiple years of both cyclical (industrial capex) and secular (electrification) tailwinds. And we have a more positive view on…

Research Report
March 16, 2018

Consumer Weakness and Stanley Black and Decker Strength

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By: Rob Wertheimer  One pushback to our bullish upgrade of Stanley Black and Decker (SBD) has been that with industrials seeing record strength in indicators around core growth, and consumers…

Research Report
March 14, 2018

GTES: Good Start Post IPO

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By: Scott Davis Out of the 20+ industrial IPOs we’ve launched coverage on, a shockingly high number of them have missed numbers out of the gate. Gates, fortunately, does not…

Research Report
March 14, 2018

What’s Missing in Boeing’s Factories?

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By: Carter Copeland  Once in 50-year margin expansion (to levels ~50% above prior peaks) remains a central pillar of our bullish stance on BA. Smart product decisions (re-engined airplane offerings…

Research Report
March 12, 2018

What’s Wrong With LLL?

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By: Carter Copeland  The short answer is nothing…but investors are asking: While still ahead of the S&P, LLL shares have lagged defense peers by ~500bps on a YTD basis, and…

Research Report
March 12, 2018

Melius Industrials Macro Strategy: Capex is King

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By: Scott Davis Folks, in the link below please find our monthly Melius Industrials Macro Strategy deck. Report Here  

Research Report
March 9, 2018

Oil & Gas Efficiency vs Structural Demand

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By: Rob Wertheimer  The most startling idea we have uncovered in more than a decade of thinking about machinery is the engine power used in fracking. A fracked well with…

Research Report
March 7, 2018

GE: What the Healthineers IPO Implies for GE Healthcare

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By: Scott Davis Siemens announced over the weekend that it’s readying its Healthineers biz for IPO in a few weeks that could value the asset at €26-31B ($32-38B USD). The…

Research Report
March 6, 2018

The Troubles with High Growth

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By: Rob Wertheimer  Ashtead stock is down 5.5% on a quarter that shows strong revenue growth and margins that underwhelmed on cost pressures. Worth noting for broader investors is that…

Research Report
March 6, 2018

Amazon’s Venture Into Home Automation

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By: Rob Wertheimer  We’ve written about tech disrupting industrial businesses and skimming off profit streams. And the pace of tech disruption can be startling to slower-moving industrial assets. With that…

Research Report
March 5, 2018

Opportunities and Risks from Recent Correction: Buy CAT

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By: Rob Wertheimer  Machinery stocks are down an average of 8% since news of possible steel tariffs broke. We see CAT as the largest opportunity in this move. Stocks that…

Research Report
February 28, 2018

HON: Dave Cote – The Best Late Round Draft Pick Since Tom Brady

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By: Scott Davis Dave Cote retired rich and made HON shareholders even richer – poster child of capitalism win/win.  In comparison, most of our companies’ CEOs retire rich with shareholders…

Research Report
February 27, 2018

Analysis of “Normal” In Ag Series: North American Combines Edition

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By: Rob Wertheimer  We’ve been working on analyzing normal volumes in Deere, CNHI and AGCO businesses. We addressed Brazilian tractors previously, and touched on North American tractors, with more to…

Research Report
February 26, 2018

Defense Momentum Intact, But Don’t Forget There’s No Such Thing as Pension Income

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By: Carter Copeland We see the defense group as ownable based on a positive cyclical growth dynamic fueled by political/public appetite for increased defense spending and an increasingly complex global…

Research Report
February 26, 2018

U.S. Multi-Industry: Why Culture Matters – “Tough & Competent”

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By: Scott Davis It’s taken me the better part of my career to understand the importance of culture, how hard it is to build, how easy it is to lose. …

Research Report
February 26, 2018

Machinery Steel Exposure

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By: Rob Wertheimer  We don’t see the proposed US steel tariffs as dramatic for machinery earnings, with most companies likely to see minimal earnings risk even without offsetting pricing. Steel…

Research Report
February 20, 2018

BA: Dream Big… Why Not Go After GE Aviation?

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By: Carter Copeland & Scott Davis Is M&A the next leg of BA’s transformation? We think BA is still in the early stages of a once-in-50-year transformation focused on becoming a higher…

Research Report
February 20, 2018

Better Truck History Shows Cycle Duration and Efficiency Risk to Growth in Machinery

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By: Rob Wertheimer  Truck cycle analysis suffers from a short history of available data, with the widely used ACT series going back only to 1996. We dug up a longer history for…

Research Report
February 15, 2018

EMR: Still a Top Pick

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By: Scott Davis Analyst day was well attended, mostly long only community vs. HF’s, mostly NYC and Boston folks.  General mood among attendees was bullish – most people like this…

Research Report
February 15, 2018

Airbus: Back on Track? Feels Like It

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By: Carter Copeland We’ve been bullish on the multi-year outlook for Airbus for the last several years, but admittedly our optimism has been modestly tempered over the last ~6 months…

Research Report
February 14, 2018

Cycles and Unexpected Outcomes on Fleet Dynamics

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By: Rob Wertheimer  A theme in our fleet and cycle work is that when normal sales on aging and shrinking fleets run into a surge in demand, results can be…

Research Report
February 14, 2018

Defense: Lots of Catalysts Now in the Price

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By: Carter Copeland This note concludes the sixth year in our effort to aggregate quarterly defense company results into “scorecards” to more clearly compare various operational and stock-performance metrics across…

Research Report
February 14, 2018

Melius Industrials Strategy

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By: Scott Davis Industrial Strategy Folks, in the link below please find our monthly Melius Industrials Macro Strategy deck. Key takeaways below… Report Here  

Research Report
February 13, 2018

Ag Dashboard

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By: Rob Wertheimer  Our ag thesis: ag machinery markets are probably much closer to normal than to trough, and equities risk mis-pricing as a result. We’ve worked on individual build…

Research Report
February 13, 2018

Thesis Creep on the Cheap

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By: Carter Copeland GD’s proposed acquisition of Fed IT provider CSRA came as a bit of a shock this morning. Few seem enamored by the deal and we attribute the…

Research Report
February 12, 2018

The GTF – Here We Go Again

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By: Carter Copeland News on Friday afternoon that the Pratt GTF engine had encountered a new problem (and a follow up on Saturday from Airbus confirming that GTFpowered aircraft deliveries would be…