Research Report
September 6, 2019

Aerospace: Cost isn’t a Four-Letter Word

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By: Carter Copeland  Cost will become an increasingly important aspect of the Aerospace OEM investment debate in the 2020s. For the most part, the margin expansion of the 2010s seen…

Research Report
August 29, 2019

DE: John May in as CEO, Thoughts on Direction

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By: Rob Wertheimer  Deere announced John May will be the next CEO, starting in November.  The announcement is as expected; John had been President and COO since April, a position…

Research Report
August 19, 2019

Melius Macro Views: A Series of Rolling Recessions

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By: Scott Davis  Folks, in the link below please find our latest Melius Macro Views slide deck. Key takeaways below: Industrials seem to be rolling from one end-market recession to…

Research Report
August 15, 2019

GE: Putting Some Context in the “Fraud” Debate

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By: Scott Davis GE has had a rough summer. Starting with a rather mediocre earnings report in late July, and now getting hit hard with the publication of a short…

Research Report
August 12, 2019

Mining Equipment in 2Q19: Still Looks Better for CAT than Others

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By: Rob Wertheimer  Parker Bay industry shipments of mining equipment for 2Q19 show a couple of contrasting narratives. The negative side is that industry sales have flattened out.  Dollars shipped…

Research Report
July 29, 2019

CGNX: Capex Slowdown

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By: Scott Davis CGNX is one of the few true secular growers in industrials, though near-term the company is struggling with a deepening recession in its key auto and consumer…

Research Report
July 29, 2019

What Can Arrest the Slide? Probably Not Canada Edibles or Beverage Launches

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By: Rob Wertheimer  Cannabis stocks have corrected 30-40% since May, and in some cases more. We’ve spent some time since launching coverage looking for grounding in valuation, looking at assets/replacement…

Research Report
July 25, 2019

ROK: Capital Spending Pause

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By: Scott Davis ROK is one of our best industrial capex bellwethers, and results this quarter suggest that trade uncertainty is starting to take a toll on spending. It’s not…

Research Report
July 17, 2019

Take-Outs a Catalyst for Industrial Small Cap Value?

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By: Scott Davis The catalyst for this note was last week’s announcement that plastic equipment maker Milacron is being acquired by Hillenbrand for $2B. Four years after the June 2015…

Research Report
July 15, 2019

Melius Macro Views: Industrials Already in Recession?

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By: Scott Davis  Folks, in the link below please find our latest Melius Macro Views slide deck. Key takeaways below: Short cycle and deep cyclical markets appear to be heading…

Research Report
July 3, 2019

Canopy Chairman/Co-CEO Departure

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By: Rob Wertheimer  Canopy Growth announced the departure of Bruce Linton, co-CEO and Chairman of the board, this morning.  Bruce commented on CNBC that he had been terminated. The news…

Research Report
July 1, 2019

Trimble: Rising Stability Missed by Market

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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…

Research Report
June 24, 2019

Industrial Inventories Flashing Warning Signs?

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By: Scott Davis Credit drives all cycles, but inventories drive much of the cycle volatility. Something many investors have been reminded of in recent months with destocking across many industrial…

Research Report
June 20, 2019

ETN: The Investment Case From Here

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By: Scott Davis ETN is a stock we’ve been recommending since our October 2017 launch, but has fallen out of favor despite overall solid results the last 2 years. Historically,…

Research Report
June 10, 2019

UTX: Creating A&D’s Newest Behemoth

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By: Carter Copeland  A transaction no one expected. The pro forma numbers look good. We and others have been patiently awaiting a separation of UTX Aerospace from the current conglomerate…

Research Report
May 13, 2019

The Defense Growth Theme Needs Some Calibrating

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By: Carter Copeland  The current bull case for Defense is predicated on revenue upside more than any time we can recall since the height of the wars last decade. We think much…

Research Report
April 16, 2019

Drivers of the North American Ag Cycle

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By: Rob Wertheimer  Farm consolidation explains many of the cycle questions and misconceptions we hear from investors. This note uses the once-everyfive-years ag census data, out late last week, as a…

Research Report
March 4, 2019

Cannabis Launch: So High Already

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By: Rob Wertheimer  We are launching coverage of the cannabis space, highlighting its growth, potential to become a major category in consumer/specialty pharma, and potential to disrupt growth curves in…

Research Report
January 24, 2019

GWW: Turnarounds are Rarely Linear

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By: Jake Levinson  GWW was one of the biggest industrial turnaround stories last year, with the stock outperforming the sector by 35% in what was an overall terrible year. Expectations have certainly…

Research Report
December 19, 2018

FAST: The Great Mix Shift

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By: Jake Levinson FAST’s business model has long been one of iterative growth, more akin to a retail company than an industrial one. First was a massive branch network expansion, tripling from…

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
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 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 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…