Barclays Upgrades 3M, ITT On Favorable Sector, Macro Outlook

Barclays upgraded its rating on the U.S. Multi-Industry group to Positive from Neutral, as the firm thinks that the streak of negative earnings revisions that have afflicted the sector will end soon, while the sector's stocks have reached an "attractive entry point." The firm upgraded several stocks in the sector, including 3M (MMM) and ITT, Inc. (ITT), to Overweight as part of its sector upgrade.

ESTIMATES, SENTIMENT FAVORABLE: Analysts' earnings estimates for the muti-industry sector have been revised downwards in three of the last four quarters, but that streak should be over within the next two quarters, wrote Barclays analyst Scott Davis. Meanwhile, sentiment towards the group has reached the lowest level for this economic cycle and seems similar to levels that proved to be "buy signals" in the past, Davis wrote.

MACRO OUTLOOK: The sector should benefit from a recovery in emerging markets and increased spending in the wake of the U.S. presidential election, Davis stated.

SECTOR OUTLOOK: The multi-industry sector should get a boost from significant inventory destocking in Q3, and its core organic growth could reach 2% in 2017, up from a decline of 1%-2% this year, the analyst stated. The sector's organic growth could reach 4% in 2018, he added. PICKS: The valuations of names like Honeywell (HON) are "unusually low," Davis wrote. He upgraded 3M, ITT, Rexnord (RXN), and Rockwell Automation (ROK) to Overweight from Equal Weight. The analyst raised his price target on 3M to $194 from $171, on ITT Inc. to $41 from $35, on Rexnard to $26 from $20, and on Rockwell to $141 from $118.

PRICE ACTION: In morning trading, 3M rose 1.2% to $171.50, ITT climbed 3.8% to $35, Rexnord jumped 8.5% to $20.60, and Rockwell fell 2.2% to $120 per share.

Disclosure: None.

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