Citigroup’s Deane Dray and team took a long hard look at the U.S. economy and the their ratings on diversified industrial like United Technologies (UTX), Honeywell (HON), Tyco (TYC) and Wesco International (WCC) and decided it was time to makes some changes.
Agence France-Presse/Getty Images Day cut her ratings on Honeywell and United technologies to Neutral from Buy, while raising Tyco and Wesco to Buy from Neutral. Dray explains why:
In downgrading [United Technologies] and [Honeywell]…and upgrading [Wesco] and [Tyco]…we have added some cyclical/growth exposure and direct [nonresidential] leverage to our Buy recommendations. We believe this move should also benefit from the seasonal January-Effect that prevails in the Multi-Industry sector. Further, it positions us for what we expect to see as an investor sentiment tilt to a risk-on/higher beta as the US economy gains more traction in early 2014. We readily acknowledge that our downgrades of the much-loved, high-quality [United Technologies] and [Honeywell] are out of consensus. We remain constructive on the earnings outlooks for both companies and these ratings changes have nothing to do with 4Q13 earnings. But the implied upside in [United Technologies] and [Honeywell] shares are not sufficient to have a Buy rating at this time. In sum, our thesis is all about a strategy to leverage the purer-play cyclical/growth exposures in [Tyco] and [Wesco] with their direct US nonresi positioning, rather than any worries about the earnings prospects for [United Technologies] and [Honeywell].
Shares of United Technologies have dropped 0.1% to $113.42 at $12:10 p.m., while Honeywell is off 0.4% at $90.47. Wesco has gained 1.3% to $90.50 and Tyco International is up 0.3% to $41.11.
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