Avondale Partners Says It's Time To Buy Deere, Joy Global And Other Machinery Stocks

Avondale recently initiated coverage on four companies within the machinery sector. Below is a closer look at what the firm had to say.

Joy Global

On top of a Market Outperform rating, the analysts issued a six- to 12-month price target of $36 for Joy Global. They noted that this quarter the shares have hit the firm’s key liquidation, capitulation and valuation criteria. This has led them to take an incrementally positive stance on the name.

At current levels, the firm sees the shares as “a call option on an eventual cyclical recovery in global mining CapEx trends,” and thus, recommended investors (especially long-term ones), to start building a position in the company.

Related Link: Morgan Stanley: Machinery Stocks Face "Doom And Gloom," Buy This One Could Survive

Deere & Co.

For Deere, Avondale fixed a $90 price target. The report assured that, two years into the agricultural industry downturn, sentiment toward the company has become substantially more bearish. Given this situation, the experts believe this is a good time to “adopt a glass half-full view on the name.”

“With rapid declines in equipment sales and OE production, we are likely to be entering FY16 at industry volume levels not seen since the early 2000’s.[sic]” As a result, the analysts see any substantial production cuts beyond 2016 as highly improbable and anticipate fiscal 2016 will mark a trough for the company’s earnings.

Titan International

For Titan, the target price stands at $16. The analysts believe that investors are mostly overlooking the internal transformation that the new management is driving – and macro headwinds do not help with its visibility.

Moreover, the note argued, the macro challenges mentioned above seem to be priced in the stock, which now trades at roughly 0.7 times the company’s tangible book value. On the other hand, the internal transformation “holds significant upside potential once the cyclical headwinds abate and the ongoing company makeover begins to fully translate into tangible results,” the report assured.

Crane Co.

Finally, for Crane Co., Avondale issued a Market Perform rating and a six- to 12-month price target of $55. The analysts pointed out that the company’s portfolio comprises high-quality businesses. Furthermore, its robust and effective management team “has been quick in responding to deteriorating market conditions in its energy-exposed end-markets in late 2014-early 2015.”

With the stock down roughly 30 percent from its recent highs, the analysts think concerns are priced in, saying “The concerns around potentially further deterioration in CR’s energy businesses are mostly priced in. That being said, a lack of visibility around recovery at Fluid and likely high consensus estimates for 2016” are keeping Avondale from being more constructive on the company.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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