Oppenheimer & Co. analyst Christopher Glynn raised his price target on shares of Cooper Industries Plc (NYSE:CBE) to $75 from $70, while maintaining "Outperform" rating.
While investment in global growth initiatives, coupled with some temporary operating issues around a production consolidation and some procurement & delivery issues, negatively impacted the second half of 2011 margins, Glynn believes that growth investments are already supporting top-line results and operating leverage is well poised to recover to about 25% incremental margins.
Noting the company-specific sequential drivers and improved leading nonresidential data, the analyst anticipates CBE has further runway on multiple expansion to track more in line with some mid-cap electrical equipment peers, with initial guidance looking increasingly in a high comfort zone.
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Updated Q1 outlook (from late February investor day) suggested trends supported the high end of Q1 guidance for $0.97 to $1.01 EPS on broad-based revenue performance across the portfolio (and inclusive of about 4 cents charge, previously not anticipated).
With 40% of revenues outside the US and half that in emerging markets, Glynn noted CBE's growth investment last year was building off a substantive base of operations, and in his view, lending to reasonably quick impact on the revenue opportunity.
Significant investment targeted (among other areas like Power Systems) the global oil & gas vertical (currently about 2/3 outside U.S.), with further buildout of global management, sales, and marketing, and a focus on other CBE businesses tangential to core O&G (Crouse-Hinds) targeting key regions and customers.
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Census Bureau data for non-residential spending improved mid-teens year-to-date through February, and with public leveling off (at least for now, after a 10% decline), total non-residential spending improved 6.5%, indicating macro inflection potentially at hand.
The analyst also noted continued balance sheet opportunity, with 2011 ending with nearly $700 million cash on hand, net debt at about 0.8 times 2011 EBITDA, and expected 2012 free cash flow of about $700 million.
The brokerage increased its 2012 EPS estimate to $4.35 from $4.25 and its 2013 estimate to $4.90 from $4.80.
CBE is trading down 0.16% at $63.96 on Tuesday.