Wall Street firm forecasts more upside for 2 portfolio industrial stocks and upgrades another. Where we stand

Published Tue, Apr 2 20245:29 PM EDT

A Wall Street firm on Tuesday struck a favorable chord on a trio of industrial holdings, reaffirming the Club's forecast for upside in shares of Stanley Black & Decker and Honeywell International . Eaton also received a well-deserved upgrade. Although the industrial sector has slumped with the broader market this week, the group experienced a solid run leading up to the second quarter. Through Tuesday, the sector has climbed nearly 24% over the past six months and 9.13% year to date, benefiting from a broadening rally outside of megacap tech stocks. In light of the upbeat Barclays note, here's a closer look at where analysts and the Club stand on Eaton, Stanley Black & Decker and Honeywell. ETN YTD mountain Eaton (ETN) year-to-date performance Barclays upgraded Eaton to a hold-equivalent rating from underweight and boosted its price target on the stock to $300 per share from $250. That implies a 4.7% decline from Eaton's close Tuesday. The generative artificial intelligence boom will lead to future sales growth for the electrical equipment provider as long as the current "data center mania persists," analysts wrote in a note to clients. They also raised their full-year 2024 earnings-per-share estimates to $10.31 from $10.28. The Barclays analysts said "it is safe to say" their underweight rating on Eaton shares since 2022 was not one of their "best calls" in their coverage universe, which consists of roughly two dozen industrial-focused companies. "The stock looks set to enjoy among the highest organic sales growth rates in [our coverage] in the next few years; this, coupled with the widespread perception that this growth is 'secular' in nature, means that a sharp valuation multiple compression may not occur for some time," they wrote. The Club took its stake in Eaton due in large part to its ability to benefit from the generative AI wave, as Barclays acknowledged in its upgrade. "I don't know why [analysts] had this as a sell," Jim Cramer said Tuesday. "They were obviously ill-informed. … Eaton is a part of this vast change in the grid that we've been talking about." Similar to the analysts, we think increased demand for electricity as more data centers pop up to support power-intensive AI computing workloads will benefit Eaton's business long term. The Club increased its Eaton's price target last month to $330 per share from $290, while affirming our buy-equivalent 1 rating. Eaton has been a strong performer since joining the portfolio in November , setting a series of all-time highs on its way to a 30.7% gain year to date. SWK YTD mountain Stanley Black & Decker (SWK) year-to-date performance Analysts raised Stanley Black & Decker's price target slightly to $107 per share from $105, implying a roughly 13% increase from Tuesday's close of $94.49. Barclays reiterated the firm's overweight rating and boosted full-year EPS estimates to $4.26 from $4.17. Barclays argued the worst is likely behind Stanley Black & Decker's crucial tools business, which is in the midst of 11 consecutive quarters of volume declines. Its brands include DeWalt, Craftsman, and Black & Decker. "We think 2023 will see trough Tools volume trends, and the company starts to make meaningful progress on inventory reduction," the analysts wrote. "As [free cash flow] expands substantially alongside inventory reduction, balance sheet leverage should fall, and the stock should re-rate higher as investors can look ahead to the earnings recovery." Barclays' view generally mirrors the Club's thesis, which is rooted in the company turning itself around from a variety of post-Covid overhangs. Stanley Black & Decker may also benefit from potential Federal Reserve rate cuts in 2024. Lower borrowing costs can increase activity in the housing sector, specifically the existing home market. This can lead to more demand for Stanley Black & Decker's offerings from do-it-yourself customers who want to buy tools for remodeling projects or various repairs. Our price target on the stock is $110 per share, which we set after its quarterly earnings results in August. We've also maintained a buy-equivalent 1 rating on the stock. HON YTD mountain Honeywell International (HON) year-to-date performance Honeywell's price target increased slightly to $232 per share from $230, implying a 15.9% gain from Tuesday's close. Analysts raised their full-year EPS estimates by a cent to $9.94, while maintaining their buy-equivalent rating on shares. The firm expects buybacks to accelerate and Honeywell to deploy more capital towards mergers and acquisitions. "HON will benefit from management moves to shift the business mix towards a higher growth portfolio," analysts argued. "We believe that its medium term margin guide will prove conservative in light of the scope for further operating improvement, and [free cash flow] conversion is rising." This is largely in-line with our take on Honeywell, though our price target remains at $230 per share. The Club reaffirmed our buy-equivalent 1 rating and price target after the company's Feb. 1 quarterly earnings release . At last week's Monthly Meeting, Jim emphasized his belief that Honeywell CEO Vimal Kapur, who has been in the top job since June 2023, should look to reshuffle the industrial conglomerate's vast business portfolio. "Time for Kapur to declare what he wants his Honeywell to be," Jim said. "Whatever he wants will be better than what we have because it's increasingly looking like a leftover pastiche of industrials. But you do have to own it before he makes his move." One move may be to sell its personal protective equipment division, Bloomberg News reported Tuesday , citing people familiar with the matter. The company has hired advisors to look into options for that business, which could be worth more than $2 billion, according to the report. (Jim Cramer's Charitable Trust is long ETN, SWK, HON. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . 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The Honeywell International sign sits outside of the company's former global headquarters in Morristown, New Jersey.

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