Key insights
- Morgan Stanley highlights Trane Technologies (TT) and Hubbell (HUBB) as best-positioned stocks amid Q1 earnings, citing durable short-cycle activity and improving end markets. TT is expected to beat estimates due to strong order growth and margin expansion, benefiting from data center demand and tariff changes. HUBB also has margin upside potential. This suggests a moderately bullish outlook for these specific stocks and potentially the broader industrial sector.
Investing.com -- The first week of Q1 earnings season has delivered results that align with expectations, as companies beat conservative first-quarter guidance while forward revisions remain muted heading into the second quarter.
According to Morgan Stanley, U.S. short-cycle activity levels have proven "more durable than feared" over the past six months, driven by production relocation rather than changes in consumption patterns.
The debate now centers on whether the current ramp represents a turning cycle or inventory pull forward that could reverse in the second half of the year.
Morgan Stanley believes the best performing equities during this period of supply chain uncertainty are those backed by improving end markets, which limits potential second-half destocking and provides pricing power to offset rising cost inflation.
- Trane Technologies (TT): Morgan Stanley sees a positive setup with continued order strength and expects a Q1 beat with scope for positive revisions.
The first quarter screens for upside on Americas commercial HVAC topline and Americas segment margins. The firm notes that TT aggressively reduced inventory in Q4, creating scope for margin expansion.
Data Center is expected to continue leading order growth, with potential for Europe to contribute. As an outsized U.S. producer, TT is well positioned for recent tariff changes and the upcoming USMCA review.
Recent developments for Trane Technologies include an initiation of coverage by Evercore ISI with an Outperform rating.
The company also entered into a new $1.5 billion senior unsecured revolving credit agreement and declared a quarterly dividend of $1.05 per share.
- Hubbell (HUBB): While the setup is less compelling than Q4, Morgan Stanley sees material Q1 margin upside for Hubbell, with consensus modeling a steeper-than-typical quarterly decline.
The firm expects enough upside to drive a beat and positive forward revisions. Data Center growth guided at 15 percent stands as a source of upside.
Morgan Stanley notes the market consistently underestimates HUBB’s ability to drive positive price versus cost dynamics.
Hubbell Incorporated announced that its Board of Directors declared a regular quarterly dividend of $1.42 per share on the company’s common stock.
- Parker-Hannifin (PH): Morgan Stanley sees scope for a beat and positive revisions, with FQ3 screening for upside on margins and Aerospace organic growth. The firm highlights PH’s best-in-class pricing power heading into another wave of cost inflation.
While investors typically expect large beats from PH, the firm cautions that international markets could decelerate after favorable timing tailwinds in Q2.
Parker-Hannifin announced an 11% increase in its quarterly cash dividend to $2.00 per share. Separately, Stifel raised its price target on the company’s shares to $1,000 while maintaining a Hold rating.
- Gates Industrial (GTES): The stock has seen sharp derating but Q1 organic growth is positioned to top guidance and inflect higher into Q2.
Beyond typical seasonal ramps, Morgan Stanley sees at least 250 basis points of sequential tailwinds following Q1 ERP system implementation.
The bank believes market preference for short-cycle industrial exposure will return after Q1 earnings season.
Gates Industrial Corporation reported fourth-quarter 2025 earnings that slightly beat expectations, with an EPS of $0.38 and revenue of $856.2 million.
- Vertiv (VRT): While Data Center demand remains robust and commentary has grown increasingly bullish, the company did not disclose Q1 order rates.
Morgan Stanley notes that sharp backlog expansion is a positive signal for revisions but could also indicate an industry running up against capacity constraints.
Vertiv reported strong first-quarter results that beat expectations, leading the company to raise its full-year earnings guidance. The company also announced the acquisition of Strategic Thermal Labs LLC to enhance its liquid-cooling technologies.
Rounding out Morgan Stanley’s list of best-positioned stocks for the Q1 earnings cycle are industrial leaders Rockwell Automation, Johnson Controls, and W.W. Grainger.
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