Trane Technologies ( NYSE: TT ) was downgraded to an investment rating of Market Perform from Outperform by analysts at BMO Capital Markets. They said shares of the maker of heating, ventilation and air-conditioning equipment had become overvalued in relation to estimates for its earnings.
Trane’s ( TT ) stock trades at 15 times the consensus estimate for 2023 EBITDA, compared with a multiple of 12 times for the Standard & Poor’s 500 stock index ( SP500 ), according to BMO.
“Downgrading stocks on valuation has admittedly been a poor decision over the past many years. And investors' interest in HVAC names has recently picked up, mainly owing to positive sentiment around robust orders for commercial-HVAC equipment and relative bullishness on nonresidential end markets heading into 2023,” John Joyner, analyst at BMO said in a Dec. 20 report. “However, we have less confidence in the back half of 2023 and 2024.”
Trane’s ( TT ) stock has risen 40% from a 52-week low of $120.64 in June to $168.75 as of the close of Dec. 20. The company is among the makers of HVAC equipment that may benefit from federal incentives in the Inflation Reduction Act of 2022 to buy energy-efficient equipment.
BMO raised its EPS estimates for Trane ( TT ) for 2022 to 2024.
“Despite the lofty valuation, our downgrade does not represent a recommendation to sell the shares,” according to BMO. “Rather, we would prefer not to initiate a new position at current levels and see more attractive opportunities elsewhere.”
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Trane Technologies downgraded to Market Perform at BMO Capital