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JPMorgan downgrades Bodycote, cites near-term pressures
30th Nov 2020 08:25
(Sharecast News) - JPMorgan Cazenove downgraded heat treatments supplier Bodycote on Monday to 'underweight' from 'neutral' and cut the price target 635p from 670p as it argued that near-term pressures will weigh on the stock.
"We believe Bodycote has been fundamentally improved by the current management team, reflected in a higher through-cycle margin, and we expect progress to continue in the coming years," JPM said. "However, we see the full delivery of this upside as longer-dated."
In the near term, JPM expects the shares to come under pressure from a slower-than-expected earnings recovery and the need for a consensus reset.
The bank cut its 2020/2021/2022 adjusted EBITA forecasts by 8%/15%/5% to a level "well below" standing consensus and said it prefers overweight-rated Melrose Industries for investors looking to play a recovery in the automotive/aerospace industry.
JPM noted that Bodycote's third-quarter trading update confirmed trading remains under the cosh, with organic sales still declining more than 20% year-on-year.
"Aerospace is the primary area of weakness but, despite sequential improvement, each of Automotive and General Industrial and Energy still declined double-digit," it said.
"We believe Bodycote has been fundamentally improved by the current management team, reflected in a higher through-cycle margin, and we expect progress to continue in the coming years," JPM said. "However, we see the full delivery of this upside as longer-dated."
In the near term, JPM expects the shares to come under pressure from a slower-than-expected earnings recovery and the need for a consensus reset.
The bank cut its 2020/2021/2022 adjusted EBITA forecasts by 8%/15%/5% to a level "well below" standing consensus and said it prefers overweight-rated Melrose Industries for investors looking to play a recovery in the automotive/aerospace industry.
JPM noted that Bodycote's third-quarter trading update confirmed trading remains under the cosh, with organic sales still declining more than 20% year-on-year.
"Aerospace is the primary area of weakness but, despite sequential improvement, each of Automotive and General Industrial and Energy still declined double-digit," it said.