Carrier Global ‘s long-term potential is currently overshadowed by a catalyst-free near term, Morgan Stanley warned. Analyst Joshua Pokrzywinski downgraded the HVAC stock to equal weight from overweight and cut his price target by $2. Pokrzywinski’s new price target of $47 implies a 3.1% upside over Wednesday’s close. “We believe CARR’s portfolio transition will ultimately create a faster growing purer HVAC company and remain constructive on the business longer term,” he said in a note to clients Thursday. “But view the lack of near-term catalysts and relative resilience vs. other HVAC names as an opportunity to focus elsewhere for the next few quarters.” Pokrzywinski said recent portfolio announcements put the company on track for “significant growth acceleration and rerating potential” in the next one to two years. He pointed specifically to the $13-billion acquisition of Viessmann and the plans to sell Fire & Security and most of its commercial refrigeration business. However, he said shares are likely to be range-bound until the acquisition close is more within short-term view and divesture procedures are clearer. The deal and other portfolio moves should be dilutive in 2024 before becoming accretive. Recent portfolio announcements have tended to underperform in the six months following the news, with Pokrzywinski listing Trane Technologies , General Electric , Fortive and Emerson among examples. While Pokrzywinski said most of the companies rerated around the closing of their transactions, he noted that Carrier shares have performed in line with the HVAC group and below the S & P 500 since the announcements. Still, he said a pure-play HVAC business could rerate as high as Trane levels, which would mean an upside of 18% to Carrier’s valuation. That upside to the multiple, which Pokrzywinski said should come when future actions and revisions are clearer, should be positive for long-term investors and ones with lower confidence in the macro environment who want 2024 rerated names early, he said. Elsewhere, Pokrzywinski said he’s constructive on the European heat pump market, one the European Commission sees growing at a 14% compound annual rate through the end of the decade. Carrier anticipates about 25% growth through 2027. He’s also watching near-term residential trends, given the potential challenges due to elevated inventory and cooler weather. — CNBC’s Michael Bloom contributed to this report.
