An analyst cut his price target on 3 of our industrials. Why we're still upbeat on the stocks

Published Wed, Mar 26 20254:15 PM EDT

A Wall Street firm issued price target reductions for three of our industrial stocks. However, the changes are not cause for concern. The news Analysts at Barclays on Wednesday struck an upbeat tone on Honeywell despite modestly revising their price target on the stock to $247 a share from $251. The new target still implies roughly 16% upside from Tuesday's close, and analysts doubled down on their buy rating. In fact, the analysts said Honeywell is one of their preferred stocks within their multi-industry coverage universe — part of the reason is simply out how of favor it has been, down nearly 6% year to date while the broader S & P 500 industrial sector is up around 1%. Its forthcoming split into three separately traded entities and other portfolio shakeups also give the stock some "self-help characteristics," analysts wrote. That can appeal to certain investors. When it reports first-quarter results in the coming weeks, Barclays suggested that Honeywell may end up raising the low end of its 2025 guidance, given the conservative starting point issued earlier this year. "Despite investor apathy, we think potentially conservative guidance / the scope for guide raises could reignite interest," the analysts wrote. The firm also added that "the upside potential remains substantial" when it comes to Honeywell's sum-of-the-parts valuation due to the split. The stock is up less than 1% on Wednesday. Meanwhile, Barclays lowered Eaton's price target to $315 from $325, implying a roughly 5% increase from Tuesday's close. The firm maintained their hold-equivalent rating on the stock. In general, analysts said uncertainty on the sustainability of AI investments in the coming years from the hyperscalers — companies that provide large-scale cloud computing infrastructure — remains an overhang on Eaton's stock because it supplies electrical equipment used in data centers. Still, analysts said Eaton's exposure to data centers, aerospace and utility grid upgrades should lead to "sales and earnings growth superior" to its peers. Finally, analysts tweaked their price target on Dover to $205 a share from $213, citing "ongoing top-line softness" in short-cycle industrial names. The call implies more than 15% upside for the stock, as of Tuesday's close. Analysts forecast that company sales could "see some acceleration" through fiscal year 2025 as headwinds in the beverage-can business ease. Big picture It's a complicated backdrop for industrial stocks right now, partially due to economic and trade policy uncertainty. There's also company-specific factors for investors to contend with. Honeywell is breaking up into three companies after activist investor Elliott initiated a $5 billion-plus stake in the industrial giant last year. The hedge fund wanted Honeywell to separate its aerospace and automation businesses. That's because the conglomerate has had a lengthy period of weak organic revenue growth. On top of that, management has delivered disappointing guidance for the past several quarters. Meanwhile, Dover and Eaton are dealing with investor questions regarding the impact of artificial intelligence spending on their businesses. These were brought front and center again Tuesday after Alibaba Chairman Joe Tsai warned of a potential potential building in data centers. Both companies play a role in the build out of data centers by offering thermal connectors in Dover's case, while Eaton provides power management solutions. Both stocks were lower Wednesday, along with a host of others in the broader AI and data center trade . Bottom line We never enjoy seeing analysts lower their price targets on portfolio names. But, in this case, there's no cause for concern. Not only are the reductions very small, but they aren't based on major concerns with each companies' fundamentals. In the case of Honeywell, it was great to see Barclays prediction that management could raise the low end of its 2025 outlook. We upgraded Honeywell to a buy-equivalent 1 rating after its February quarterly earnings report. Part of the reason why was the company's sensible guidance, which helped reset expectations. Management made it clear its forecast does not assume a recovery in the short-cycle business as it had in 2024. Shares sold off as a result of the earnings release. In our view, there was little room for more downside. We've picked up more shares of Honeywell twice since then. "Since they finally gave a conservative guide, we thought it was a good chance to buy because if there is a recovery, then you're going to have upside," said Jeff Marks, the Investing Club's director of portfolio analysis. "There's [also] the three-part breakup, which we think will create value." Barclays understandably is worried about investors being more cautious on AI-related industrials such as Eaton. Not only has Eaton been adamant about its data center business holding up, but management's commentary on its other end markets such as utilities and aerospace, have been reassuring, too. As we wrote in Wednesday's Homestretch , if the market was oversold we would be considering adding to a stock like Eaton on the pullback. We most recently bought Eaton on March 13. We've bought Dover twice into weakness this month. CEO Richard Tobin has dispelled some of our concerns about order growth trends at multiple industrial conferences — first in late February and then again in mid-March . 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Honeywell Specialty Materials in Baton Rouge, LA. Part of Dover Corp.'s OPW Fueling Components. A worker wearing a protective mask assembles truck transmissions at the Eaton Corp. manufacturing facility

Kathleen Flynn for the Washington Post | Dover Corp. | Mauricio Palos | Bloomberg | Getty Images

A Wall Street firm issued price target reductions for three of our industrial stocks. However, the changes are not cause for concern.