Monday, KeyBanc Capital upgraded Trinity Industries Inc. (TRN) shares to Buy from Hold with a price target of $24. The brokerage maintained its 2009 EPS estimate of $1.17, and its 2010 estimate of $0.56.
The brokerage increased its price target on Kaydon Corp. (KDN) shares to $44 from $36, while maintaining its Buy rating. The brokerage maintained its 2009 EPS estimate of $1.45, and its 2010 estimate of $1.78.
Analyst Steve Barger noted that after recently attending the American Wind Energy Association's show in Chicago, he is much more enthusiastic about the wind story for 2010, and he is upgrading rating on Trinity Industries to Buy and increasing his price target for Kaydon.
Based on conversations, the analyst believes many wind industry participants have been energized by recent legislative provisions, stimulus-driven funding for renewable projects, and more aggressive governmental statements of support for renewable energy programs.
The analyst found that many industry participants are of the opinion that funding could start flowing to projects in second half of 2009, and that the industry could see a solid resurgence in 2010. In the analyst's view, should KDN or TRN report increased quoting and booking activity it will serve as a formidable catalyst for the shares.
While the analyst is becoming more bullish on these names (along with, generally speaking, most of list), he reminds investors that the companies likely face several more quarters of challenging end markets and weaker performance.
However, the analyst believes a foundation is in place to support improving demand trends, which, in conjunction with dramatically resized cost structures, should translate into significant improvements in incremental operating contribution margins and higher earnings.
In the analyst's view, once these trends become apparent, investors will look through 2009 results and instead focus on 2010 and beyond, resulting in trough multiple expansion and price support for these names. While the analyst does not advocate blindly chasing the shares, he does believe investors should be buyers on pullbacks in anticipation of improving sentiment and fundamentals.
In the analyst's view, investors are unlikely to see retracements anywhere close to the March lows, and should instead focus on potential upside from here relative to a more normal demand environment in 2010 and 2011.
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