Russia's war will reorient global energy flows and these stocks stand to benefit, says Bernstein

Published Sun, Apr 10 20227:43 AM EDT

Russia's war on Ukraine is changing the energy landscape, and as nations — especially in Europe — vow to move off the country's energy exports, new infrastructure will need to be built to make up the shortfall. Bernstein envisions billions of dollars being spent on new facilities, which the firm said will benefit these industrial stocks. The firm estimates that energy companies will spend an extra $106 billion to $137 billion over the next two to six years. This spending will aim to help replace 3 million barrels per day of Russia's oil, as well as the country's natural gas production. Upstream spending is expected to grow about 10% to support new oil production, while midstream liquified natural gas capex is set to increase by around 280%, the firm said. Ultimately, this translates to a $38 billion incremental market opportunity for the machinery companies that Bernstein covers. Industrial spending makes up between 10% and 30% of energy projects' capital spending, while construction equipment represents between 5% and 7%. "On an annualized basis, equipment spending needs to grow by 10% to support this infrastructure build-out," the firm wrote in a note to clients. "Given the tight supply chain/channel inventories, we can expect at mid to upper single digit pricing, suggesting 15-20% revenue growth potential." In terms of impacts on individual companies, the firm said Caterpillar will be the biggest beneficiary within the machinery sector. The firm noted that between 10% and 15% of the company's sales come from energy market spending. This compares with peers that generate, on average, between 3% and 4% from the sector. Ultimately, Bernstein said energy infrastructure can generate 40% incremental margins for Caterpillar. The company is especially well positioned this time around after it acquired Weir Oil & Gas in 2020, Bernstein said. The firm has an overweight rating and a $240 target on the stock, which is 11% above where the stock closed Thursday. Bernstein also likes Quanta Services based on its pipeline and electric grid construction offerings, and Cummins for its hydrogen production. Within the multi-industrials category Bernstein said Emerson is the most favorably exposed. "European efforts to displace Russian gas imports could deliver ~$500 million in revenue upside from FY26 (over several years) via the incremental LNG build-out," the firm said. Bernstein has a market perform rating on Emerson and a $105 target, which is about 10% above where the stock closed on Thursday. — CNBC's Michael Bloom contributed reporting.

Caterpillar Inc. excavators are displayed for sale at the Whayne Supply Co. dealership in Louisville, Kentucky, U.S., on Monday, Jan. 27, 2020.

Luke Sharrett | Bloomberg | Getty Images

Bernstein envisions billions of dollars being spent on new facilities, which the firm said will benefit these industrial stocks.

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Russia's war will reorient global energy flows and these stocks stand to benefit, says Bernstein

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