(By Balaseshan) Deutsche Bank analyst John Inch downgraded rating of SPX Corp. (NYSE: SPW) to "Hold" from "Buy" while increasing price target to $90 from $81.
The brokerage reduced its 2013 EPS estimate for the specialized engineered services provider by 5 cents to $5.00 and its 2014 estimate by 25 cents to $6.00, based on broad fine-tuning and lower expected transformer segment pricing benefits.
While Inch is revising his price target higher – consistent with his updated valuation framework for his multi-industry coverage universe – this upside seems insufficient to justify a continued purchase recommendation.
[Related -Dividend Roundup: BNS, CRY, CVI, SPW, TUC, OXLC]
The analyst's SPX estimate cuts are largely driven by lower assumed top line growth and lower associated forecast margins. One of the larger factors here is the company's transformer business, where he has previously assumed pricing would have started to pick up at this point.
The company's management now expects transformer pricing to coincide with a sustained rebound in domestic demand for more power generation capacity – a prospect that could be at least a couple of years away, Inch noted.
In the analyst's opinion, SPX's shares have been outperforming over the past few weeks, in part, due to the involvement of a prominent activist investor in the name.
Overall, it is not clear to Inch that significant shareholder value can be unlocked in this regard versus the current strategy. For instance, the analyst believes management has little intention of selling the company's transformer business.
SPW is trading down 3.76% at $78.12 on Monday.