Morgan Stanley gave a lift to mid-cap engineer IMI PLC (LON:IMI) with an upgrade to ‘overweight’ from ‘equal-weight' but blighted its peer Rotork PLC (LON:ROR) with the reverse move.
In a note to clients, the US investment bank’s analysts pointed out that IMI “has overshot to the downside, with a derating driven by concerns on PowerGen, short cycle risks & Hydronic execution.”
READ: Rotork shares jump as it lifts full-year guidance after strong first quarter
As a result, they added, in their view, this provides one of the best entry points for the stock in eight years and they advocate rotating out of Rotork, previously their sector top pick, into IMI.
The Morgan Stanley analysts left their 1,410p price target for IMI unchanged, offering 20% upside potential. In mid-morning trading, IMI shares were 2.5% higher at 1,205p.
But Rotork shares fell 1.4% to 333.2p with the Morgan Stanley’s target price also left on hold at 360p.
In a separate note, the bank’s analysts said: “Rotork has been the biggest beneficiary in UK Engineering from a recovery in Process Capex with orders inflecting from - 18% in 4Q15 to +27% in 1Q18, driving a near 50% re-rating.”
They added: “With 6% upside to PT we are taking profits and rotating into IMI, which hit a 14Y low vs Rotork and 8Y low vs UK peers.”