Multi-Industry_ CoTD_ Still Following the Money

Summary of Key Points from the Conference Call Industry Overview - The report focuses on the Multi-Industry sector in North America and highlights the relationship between the US M2 Money Supply and Industrial Orders as a leading indicator for future growth in the industrial sector [1][2]. Core Insights and Arguments - The US M2 Money Supply has increased by approximately 1.5% over the last 3 months, marking the strongest growth in nearly 3 years [4]. - The report indicates that the YoY change in US M2 Money Supply is a critical leading indicator for Industrial Orders over the next 12 months, suggesting continued order strength into YE'25 [1]. - Despite a tightening cycle, there is caution regarding overstated momentum due to tariff pre-buy effects, which may soon turn into headwinds [1]. - The US Industrial sector has shown resilience, achieving approximately Mid-Single Digit (MSD) organic growth through 2023, even amidst lending declines in the first half of 2024 [1]. - Key mega-trends driving this resilience include US Reshoring, Electrification, Era of Efficiency, and AI/Data Center developments [1]. Company-Specific Insights - Companies with significant leverage to improving ISM New Orders include Rockwell Automation (ROK), Eaton Corp (ETN), Gates Industrial Corporation (GTES), and Fastenal Co (FAST) [1]. - Eaton Corp (ETN) has a price target of $309.88, applying a 28x multiple to its 2026 EPS of $13.79, reflecting a 20% premium over the S&P 500 [7]. - Fastenal Co (FAST) has a price target of $76, based on a 33x multiple of its 2026 EPS of $2.30, which is in line with its long-term trading history [8]. - Gates Industrial Corporation (GTES) has a price target of $22, based on a 10x EV/EBITDA multiple of its blended 2025/2026 EBITDA of $806 million [9]. - Rockwell Automation (ROK) has a price target of $345, based on a 29x blended FY'26/'27 EPS of $11.83, which is a 30% premium over the S&P 500 [14]. Risks and Considerations - Risks to upside for Eaton Corp include order acceleration from mega-projects and continued margin expansion due to a strong backlog [11]. - Risks to downside for Fastenal Co include heightened industry price competition and potential gross margin pressure from tariff headwinds [12]. - For Rockwell Automation, prolonged industrial softness and delayed growth in the auto and trucking sectors present significant risks [16]. Additional Important Insights - The report emphasizes the importance of US Reshoring momentum, which is expected to sustain into FY'25 - FY'26, enhancing long-term organic growth frameworks for companies like Rockwell Automation [17]. - The report also notes that the US Commercial & Industrial lending data has shown improvement in the latter half of January, following a softer first half [5]. This summary encapsulates the key insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the Multi-Industry sector in North America.