The fundamental outlook is encouraging, while valuation is far from compelling, but fair on a relative basis.
Vertical Research Partners10.18.17
3Q Earnings Preview; Signal vs. Noise
• Look through a noisy 3Q to focus on 2018E.It has been an eventful quarter, hasn’t it? Since our last preview we’ve had three hurricanes wreaking havoc, earthquakes in Mexico, ongoing M&A activity, and an appreciably weaker USD despite heightened geopolitical tensions. As a result, we have adjusted estimates for the majority of stocks in our coverage, either previously or herein. For investors though, these sources of “noise” will render 3Q earnings prints less meaningful than usual. So, we aim to focus on the “signal”, i.e. the likely trajectory of earnings in 2018. Here, we find the fundamental outlook encouraging as evidenced by favorable trends in US ISM manufacturing as well as architectural billings (ABI), feedstocks and energy, and prospective incremental demand stimulus in two end-use markets: autos and construction. Meanwhile, valuation is far from compelling, but fair on a re
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