Benzinga | Oct 8, 2021 11:25AM EDT

Wells Fargo Initiates Coverage On 5 Building Products Stocks With Mixed Ratings

* Wells Fargo analyst Joseph O'Dea initiated coverage of building products companies Johnson Controls, Allegion, Trane Technologies and Dover, and Carrier Global.

* Johnson Controls International PLC (NYSE:JCI) was initiated with an Overweight rating and a price target of $82, implying an upside of 16.9%.

* O'Dea believes Johnson Controls can achieve its adjusted EPS CAGR target range of 18-21% announced at investor day. However, he thinks the company's 6%-7% organic revenue growth CAGR through 2024 "looks lofty" based on his end-market growth expectations.

* He adds that the discount Johnson Controls has seen to HVAC peers has been "justified," but executing on its targets should strongly support better relative valuation for what looks "like a clear valuation outlier to HVAC peers on 2023 estimates."

* Allegion PLC (NYSE:ALLE) was initiated with an Overweight rating and a price target of $159, implying an upside of 21%.

* The analyst wants exposure to Allegion's ability to grow mid-single-digits over the medium term. He mentions that the company has an "outgrowth opportunity" as electrification continues to penetrate residential and commercial markets.

* Trane Technologies PLC (NYSE:TT) was initiated with an Underweight rating and a price target of $163, implying a downside of 7%.

* O'Dea says that Trane has been the best performing stock in the electrical equipment and multi-industry group since 2016, but the "past performance has over flexed the multiple."

* He further says that the stock's "relative valuation bar" is too high for 2023. Assuming 2022 growth is mostly in current valuation, there's some risk as focus shifts to 2023.

* Carrier Global Corp (NYSE:CARR) was initiated with an Equal Weight rating and a price target of $51, implying a downside of 2.6%.

* The analyst says that he currently sees the risk/reward on shares as balanced based on his relative valuation framework.

* Wells Fargo analyst Saravana Raghavan initiated Lennox International Inc. (NYSE:LII) with an Equal Weight rating and a price target of $310, implying an upside of 4%.

* Raghavan mentions that sentiment across his group is the poorest on Lennox, driven by residential HVAC cycle concerns. However, he doesn't see a clear case for continued relative valuation squeeze; therefore, it's too early to get constructive, and downside risk at this point "isn't compelling enough."

* Price Action: JCI shares are trading lower by 0.12% at $70.20, ALLE up by 0.20% at $131.77, TT lower by 1.33% at $174.69, CARR lower by 1.97% at $52.30, and LII lower by 2.34% at $296.85 on the last check Friday.