Broker snap: Credit Suisse positive on Weir management´s actions

1st Aug 2012 12:01

Following a 7% outperformance in engineering giant, Weir´s, share price over the last month and despite the company having posted only minimal earnings momentum on the broker´s forecasts for 2013 (historically a key driver for the stock), analysts at Credit Suisse ask themselves why they are still buyers of Weir? It gives three answers:Firstly, its estimated 2013 earnings per share (EPS) forecasts have declined 17% year-to-date better reflecting pressure pumping weakness with management now actioning self-help initiatives (cutting capex, 25% reduction in SPM operating costs by year end) to offset upstream oil & gas headwinds.Secondly, as visibility improves and estimated 2013 consensus forecasts become more realistic the stock starts to rerate towards its peer group earnings multiple from its current discount (especially as EPS growth returns in 2014). Thirdly, a full 58% of the group´s earnings before interest, taxes and amortizations is generated from a combination of Power & Industrial and Minerals with both posting a book-to-bill greater than 1 in the first half of 2012. Lastly, Credit Suisse points out that: "Weir is trading at 11.3 times Credit Suisse´s 2012 estimated earnings representing a 4% sector discount. Historically it has traded at a 10-15% premium. While a lack of earnings momentum will prevent this premium being regained for now we see the spread as overly discounting pressure pumping headwinds." Credit Suisse has raises its target price on the firm to 1850p from 1750p before, while keeping its overweight rating unchanged. AB