U.S. Machinery & Electricals: Four stock calls into the quarter

Investing.com -- In the U.S. Machinery & Electrical sector, several companies are showing promising performance despite varying market conditions.

Bernstein’s latest analysis highlights top performers positioned for growth in the coming quarters. Here’s a breakdown of the strongest contenders in this industrial segment.

Hubbell (HUBB) emerges as the top pick, despite shares lagging electrical peers by 10% since Q2 reporting due to skepticism about growth acceleration from 6% in the first half to 10% in the second half.

Several factors support their ability to meet targets: pricing is expected to increase from 1% to 4-5% as tariff-driven adjustments take effect; grid infrastructure growth should materialize, particularly in distribution; grid automation has found a bottom with flat year-over-year comparisons expected in the second half; and early signs of accelerating non-residential activity should benefit the HES business.

Analysts project solid performance in Q4, setting up a strong entry into 2026.

Hubbell recently completed its acquisition of DMC Power, a manufacturer of connector technology systems for high voltage power infrastructure. The company also announced that CFO Bill Sperry will retire at the end of 2025, with Joseph Capozzoli named as his successor.

Caterpillar (CAT) ranks second, with several positive indicators despite consensus already being long on the stock. The August announcement of higher tariff costs (approximately $1 EPS headwind) has de-risked Q3 reporting.

Order growth is expected to continue at 14% year-over-year, driven by broadening construction activity and Power Generation demand. Dealer inventory destocking will likely continue with seasonal patterns, while equipment pricing is improving.

Power Generation capacity additions should boost second-half EPS. Analysts expect CAT to beat Q3 estimates by 2% and issue guidance that raises street estimates by 1%, creating a strong position heading into 2026.

Caterpillar announced it has entered into an agreement to acquire Australian mining software provider RPMGlobal Holdings Limited. Additionally, both BofA Securities and Bernstein raised their price targets for the company.

Paccar (PCAR) presents a contrarian positive outlook despite challenging truck market conditions. Near-term challenges are significant: truck deliveries may miss expectations by 8-9% in the second half, and tariff costs could pressure margins.

Management might forecast a 10% industry decline for 2026, contrary to street expectations of 10% growth. However, this Q3 report could be a clearing event, as the 2026 production guide would be 20% below replacement levels, marking the lowest point outside a recession.

The market is already pricing in less than $5 EPS for 2026, and potential Section 232 commentary could provide a $0.60 tailwind for 2026, suggesting further upside potential.

In a recent development, preliminary data showed North American Class 8 truck orders reached an eight-month high in September.

Paccar also announced a collaboration with Dragonfly Energy on lithium-powered solutions to reduce idling in the trucking industry.

Eaton (ETN) rounds out the list with stable but less dramatic prospects. Q3 and Q4 earnings are expected to align with street expectations. Order rates above 1.1x would satisfy the market, with commentary likely focusing on broadening beyond data centers and utilities into non-residential recovery expected in 2026.

Preliminary organic growth for 2026 is projected at 8% year-over-year, exceeding the 6-8% guidance from last year. Capacity additions, restructuring, and improved margins could drive a 2% increase in 2026 estimates.

Eaton has completed a $100 million expansion of its manufacturing facility in Texas to increase production capacity for voltage regulators and transformers. The company was also selected by Bell Textron Inc. to develop the aerial refueling probe for the U.S. Army’s MV-75 Future Long Range Assault Aircraft.

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