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Graco Rises After Analyst Upgrades Stock

The Associated Press

NEW YORK (AP) — Graco Inc. rose Friday after an analyst hiked his rating on the fluid control equipment maker's stock on expectations of an improving market plus a recent price decline that left shares "fairly valued."

Goldman Sachs analyst Mark Zepf, who raised his rating to "Hold" from "Sell" and increased his price target to $21 from $15, said the "potential for further margin deterioration appears less likely given signs of macro stabilization."

Since being placed on Goldman Sachs' Americas Sell List on Feb. 25, the stock has fallen 42.2 percent compared with 37.6 percent for its peers, he said in a client note.

"While shares appear fairly valued, potential for further margin deterioration appears less likely given signs of macro stabilization."

Zepf also said Graco's "order rates are likely near bottom." On March 18, the company reported its year-to-date order rate was down 40 percent.

Further, dollar strength should moderate over the next few quarters, the analyst said.

His forecast for 2009 earnings per share is 85 cents. Analysts surveyed by Thomson Reuters expect, on average, $1.03.

In afternoon trading, shares rose $2.28, or 11.3 percent, to $22.45.

Other analysts were less sanguine, and somewhat surprised at the share price gains.

BMO Capital Markets analyst Charles D. Brady maintained his "Market Perform" rating, noting Graco's report earlier this week that first-quarter profit fell 92 percent as well as the recent plunge in the company's order rate.

"Orders continue to look weak and management themselves says there is no visibility," he said Friday afternoon in an e-mail. "Key end-markets are still weak."

On the other hand, "Graco is a good quality company that will be earlier in the cycle pickup than some other industrial companies," he said, referring to a 2010 pickup.

In a client note earlier in the day, Brady noted Graco did not supply first-quarter order rate information except to say that the run rate has "improved slightly" in recent weeks.

"It was noted that 'few end markets or geographies show any real signs of strength,'" he wrote.

Brady lowered his forecast for 2009 earnings per share to 60 cents from 92 cents.