Market Performance
[Index | % change WoW ]
S&P 500 | 3216 unch
Dow Jones | 26470 unch
Russell 2000 | 1468 unch
Russell Microcap | 552 unch
10-Year | 0.59% -4bps
Gold | 1900 +5%
Oil | 41 unch
VIX | 26 unch
Not much fluctuation overall in markets over the past week…
Market Stats
Taking a look at the 2020 and 2021 earnings estimates for the S&P 500
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F3ac5bead-a090-4aee-9146-c29e395bdd68_1058x612.png)
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fc2f81716-99f2-4311-998d-2f833d2ea6c2_1103x444.png)
I find it interesting that estimates for 2021 have settled in at the $163 level — indicating a full recovery from 2019 to 2021. This seems like a bit of a stretch given how Q1 earnings have been progressing.
We have the S&P 500, currently trading at 3216, valued at 25-26x 2020 earnings and 19.7x 2021 earnings.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fe310a13d-2e66-47d8-a238-385c41113b22_1122x440.png)
Quick Value
Carrier Global Corp (CARR)
Picking up the final piece of the former United Technologies… Carrier Global (CARR) sells and services HVAC, refrigeration, fire & safety equipment. It was spun off from United Tech in April 2020.
There are 866m shares outstanding x $26.60 = $23bn market cap. Add in another $10.5bn in net debt and this is a $33.5bn enterprise value.
Of the $18.6bn in 2019 sales — 72% came from new equipment sales and 28% from services and aftermarket. It’s fascinating how much this differs from Otis elevators — where service was 57% of sales and 80% of operating profit! Perhaps there is significant growth opportunity on the service/aftermarket side for Carrier?
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ffd07b072-d30b-4ffd-b470-e5b0a6f29300_906x418.png)
These are popular brands with a combination of commercial and residential offerings…
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Feecd0eae-a7da-4bc1-8913-463e01f3f826_869x144.png)
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F185a3b47-db2b-478b-b957-28158fb14feb_788x882.png)
Carrier highlights the “megatrends” at play in this industry — namely: higher temperatures, growing global middle class, and trends toward urbanization…
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Fbc326287-5b23-4d4f-bf3d-23a31f735fc7_1213x679.png)
At the time of the spin, pro-forma 2019 earnings were roughly $2 per share which would = 13.3x PE ratio
…but
COVID is impacting this business just as it has others — sales were down 10% in Q1 2020 and operating profit was down 37%. Consensus estimates call for $1.65 in 2021 earnings = 16x earnings.
Carrier also hopes to convert earnings to free cash flow at a 90-100% rate. This should give them some $1.4-1.7bn in annual free cash flow to dedicate to buybacks or M&A.
Similar to its sister spin-off, Otis, Carrier relies on its leading market share positions to expand sales of new equipment which leads to the large and growing installed base of equipment for high-margin service and aftermarket sales.
Is the stability of this business enough to warrant a high multiple? Perhaps. Clearly, the business has not been completely immune to the COVID impact.