Baird upgrades Carrier Global stock to Outperform with $75 price target: Should you jump in?

On Monday, analysts at Baird upgraded the stock of Carrier Global Corp (NYSE: CARR) from a Neutral to an Outperform rating. The upgrade is based on Carrier’s promising valuation and improving business outlook.

The analysts at Baird highlighted several catalysts that could propel Carrier’s stock upwards in the next 12 to 18 months. These include strategic asset sales, aggressive capital deployment, and a resurgence in U.S. residential HVAC trends.

The firm also raised its price target for Carrier to $75 per share, up from $64, reflecting a strong belief in the company’s potential for growth and value realization.

This upgrade follows a series of strategic moves by Carrier, including the recent completion of the sale of its Industrial Fire business for $1.425 billion to Sentinel Capital Partners.

This transaction is part of Carrier’s broader strategy to streamline its operations and focus on core areas. The company plans to use the proceeds to pay down debt and resume stock buybacks, further enhancing shareholder value.

David Gitlin, Carrier’s CEO, expressed confidence in the company’s transformation journey and its ability to close additional planned sales, such as the Commercial Refrigeration unit, by the end of the third quarter.

Carrier’s stock has also seen upgrades from other financial institutions, including Citigroup, which recently raised its rating to “Buy” due to strong demand for commercial HVAC equipment.

Citigroup analysts project mid-single-digit percentage growth in Carrier’s core markets over the next few years, driven by a rebound in the U.S. residential market and robust commercial HVAC demand.

They have set a price target of $74 per share, based on a forecasted earnings multiple of 24 times 2025 earnings of $3.10 per share.

Recent earnings and earnings expectations

Earlier this year, Carrier reported a strong first-quarter performance, with a profit that exceeded expectations and significant revenue growth. The company’s non-GAAP EPS of $0.62 surpassed estimates by $0.12, although revenue of $6.18 billion fell short by $150 million.

CEO David Gitlin reaffirmed his commitment to Carrier, dispelling rumors of his potential move to Boeing, which further boosted investor confidence.

Looking ahead, Carrier’s upcoming second-quarter earnings report is highly anticipated, with analysts forecasting a substantial year-over-year increase in both EPS and revenue.

The company is expected to announce EPS of $0.76 compared to $0.23 in Q2 2023, and revenue estimates are set at $7.07 billion, up from $5.99 billion in the same quarter last year.

This expected growth is attributed to organic sales increases and the positive impact of strategic acquisitions.

Business fundamentals and valuation

Fundamentally, Carrier is in a robust position. The company’s aggressive strategy to streamline its operations through acquisitions and divestitures has been a significant focus.

The acquisition of Viessmann Climate Solutions, a premium European brand, for €12 billion has notably expanded Carrier’s footprint in Europe and enhanced its market position.

Viessmann’s direct-to-installer model and rapid growth in the heat pump market are expected to drive substantial revenue growth for Carrier, with projections indicating the heat pump market could triple in size by 2030.

Carrier’s strategic divestments have also been pivotal. The sale of Global Business Solutions to Honeywell for $4.95 billion, Commercial Refrigeration to Haier for $775 million, and Industrial Fire to Sentinel Capital Partners for $1.425 billion have collectively brought in net proceeds of approximately $5.5 billion.

These funds are being used to deleverage the balance sheet and are expected to support share repurchases, further enhancing shareholder value.

Despite underperforming its peers like Trane and Lennox in the past year, Carrier’s valuation suggests potential for a catch-up trade.

With its current share price at $62 and a forward P/E of 22, offers an attractive entry point to investors, especially for those with a long-term perspective.

The company’s streamlined focus on heating and cooling solutions, combined with its strategic acquisitions and divestments, provides a solid foundation for future growth.

$59.2: Resistance now turns support

Now that we have a comprehensive understanding of Carrier Global’s recent upgrades, strategic initiatives, and fundamental business outlook, it’s time to delve deeper into the technical aspects.

Let’s examine what the charts have to say about Carrier’s price trajectory and potential trading opportunities.

CARR chart by TradingView

Carrier’s stock recently broke above its long-term resistance at $59.2 following the release of its Q1 earnings. The stock has been trading above this level for more than 2 months now which is a great sign for the bulls.

Since the stock is trading at its all-time high currently, the bullish momentum is evident across timeframes. Hence, investors who are bullish on the stock can purchase it at current levels with a stop loss at $59.

Traders looking to short the stock must wait patiently for short-term weakness to emerge, which will be confirmed if it closes below its 50-day moving average currently near $64.

However, any strong bearish momentum will only materialize if the stock drops below $59.2.

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