CIBC cuts view of diversified industrials Eaton and Parker-Hannifin downgraded By Padraic Cassidy, MarketWatch Last Update: 12:31 PM ET Jan. 12, 2006 Disable MW live quotes | E-mail it | Print | Alert | Reprint | ?
NEW YORK (MarketWatch) -- Analysts at CIBC World Markets cut their ratings on two diversified industrial manufacturers Thursday and moved to a dimmer view of the sector, citing slowing economic growth from higher interest rates and energy prices. <a href="https://www.canada.etrade.com/splash/NEW.shtml"" target="_blank">http://www.marketwatch.com/RealMedia/ads/click_lx.cgi/yahoo.marketwatch.com/commentary/general.asp/3... target="_new"><IMG SRC="http://a.mktw.net/MarketWatch/ETrade_0601_MW_NC_Geo_RMW/etradeBT_300x250_20k.gif" WIDTH="300" HEIGHT="250" BORDER="0"></a> Free! Sign up here to receive our Personal Finance Daily e-Newsletter! TRADING CENTER
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TRACK THESE TOPICS My Portfolio Alerts Company: Eaton Corporation Add Create Company: Parker-Hannifin Corporation Add Create Company: Danaher Corporation Add Create Company: Illinois Tool Works Inc. Add Create Get breaking news sent directly to your in-box Create a Portfolio | Create an Alert
Eaton Corp. (ETN: Eaton Corporation News, chart, profile, more Last: 66.46-1.09-1.61% 12:39pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: ETN66.46, -1.09, -1.6%) , which makes fluid power and truck components, and Parker-Hannifin Corp. (PH: Parker-Hannifin Corporation News, chart, profile, more Last: 72.72-0.74-1.01% 12:40pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: PH72.72, -0.74, -1.0%) , a manufacturer of motion control, power and climate control systems, were both lowered to sector underperformer from sector performer. CIBC also cut its sector rating to underweight from market weight.
"Overall, with what we believe will be a slower economic environment as 2006 progresses based on higher interest rates, energy prices and their effects on end-market demand could create a more difficult environment for our industrial universe, particularly for our more cyclical names," the analysts wrote.
CIBC's preference is for Danaher Corp. (DHR: Danaher Corporation News, chart, profile, more Last: 54.91-0.43-0.78% 12:40pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: DHR54.91, -0.43, -0.8%) and Illinois Tool Works Inc. (ITW: Illinois Tool Works Inc. News, chart, profile, more Last: 90.36+0.37+0.41% 12:39pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: ITW90.36, +0.37, +0.4%) , companies the brokerage says have what it refers to as traction control -- an ability to grow sales, margins and earnings in a slower growth environment.
"Other pockets of strength, where we believe better results could last longer into the cycle, include the specialty metals and coal railcar markets, where we continue to favor Allegheny Technologies Inc. (ATI: allegheny technologies inc com News, chart, profile, more Last: 41.17+0.03+0.07% 12:40pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: ATI41.17, +0.03, +0.1%) and FreightCar America Inc. (RAIL: freightcar amer inc com News, chart, profile, more Last: 52.92+1.28+2.48% 12:45pm 01/12/2006 Add to portfolio Analyst Create alert Insider Discuss Financials Sponsored by: RAIL52.92, +1.28, +2.5%) ."
Eaton's truck segment accounts for about 20% of sales and 33% of overall operating profits, and weaker heavy truck production in North America during the fourth quarter could lower the company's earnings. Production cutbacks could linger into the first quarter of 2006, CIBC said.
The analysts noted that Parker-Hannifin has improved its margins lately, especially in its international businesses. But it said the increase in commercial aerospace business, which produces lower margins, and integration costs associated with $700 million in acquisitions in the first half of Parker-Hannifin's fiscal 2006, could hamper any gains.
Eaton shares fell 1.5% to $66.54 midday, while Parker-Hannifin shares dropped 1% to $72.75.