On Friday, Morgan Stanley (NYSE:MS) initiated coverage on Carrier Global (NYSE: NYSE:CARR) with an Equalweight rating and set a price target of $75.00. The firm highlighted Carrier's potential for near-term acceleration due to various market improvements and internal strategies.
The analyst pointed out that Carrier is well-positioned to benefit from the positive shift in the US residential market, which makes up approximately 28% of Carrier's revenue. This shift is expected following the end of destocking and additional tailwinds from changes in refrigerant requirements.
Carrier is also anticipated to experience less international drag, with a recovery in the European Union heat pump market following the Viessman acquisition, and a broader improvement in residential markets across the EU and Asia-Pacific regions. These improvements are due to easier comparative figures from previous years and a normalization of distribution channels. Morgan Stanley projects Carrier's organic growth in the HVAC sector to jump to 6-7% over the next twelve months, compared to 2% in the first half of 2024.
However, the consensus among other analysts suggests a potential return to approximately 10% organic growth, which is more optimistic than Morgan Stanley's estimates. The firm sees possible downside risks from a negative rate of change in the Light Commercial sector and a slower recovery for Viessman. Despite these concerns, Morgan Stanley forecasts low single-digit earnings per share (EPS) growth in 2025-2026, driven by HVAC volume leverage, Viessman synergies, and benefits from recent business exits, such as Commercial Refrigeration.
The firm also notes that Carrier has transformed into a near pure-play HVAC company with an improved growth profile. This transformation has already been reflected in the market over the last twelve months, with Carrier's re-rating compared to the market and HVAC industry peers.
Morgan Stanley values Carrier stock at approximately 23 times the next twelve months' EPS, which is a roughly 10% premium to the S&P 500 index. This valuation is one standard deviation above Carrier's trading history since its initial public offering, acknowledging the company's enhanced portfolio quality.
InvestingPro Insights
As Carrier Global (NYSE: CARR) receives an Equalweight rating from Morgan Stanley, it's worth noting that the company has a strong track record of raising its dividend, with increases for four consecutive years. This commitment to shareholder returns is a positive sign for investors looking for stable income streams. Additionally, Carrier is trading at a low P/E ratio relative to near-term earnings growth, indicating that the stock may be undervalued given its growth prospects. With a prominent position in the Building Products industry and a moderate level of debt, Carrier presents a balanced risk-reward profile.
From a financial standpoint, Carrier has a market capitalization of $62.33 billion and is trading at a P/E ratio of 17.68. The company's revenue growth over the last twelve months, as of Q2 2024, stands at 8.63%, showcasing a healthy expansion in its business operations. Furthermore, Carrier has demonstrated a solid gross profit margin of 28.97%, which underscores its ability to maintain profitability amid market challenges. For investors seeking more comprehensive analysis and additional InvestingPro Tips, there are 11 more listed on InvestingPro, offering deeper insights into Carrier's performance and potential investment opportunities.
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