Morgan Stanley hikes target for Renishaw ahead of turning point in Asian demand

Analysts at Morgan Stanley upgraded their recommendation on shares of British engineer Renishaw to 'overweight' on Thursday as it forecast a "strong inflection" in machine tool data by mid-year.

Morgan Stanley said consensus estimates for Renishaw, with its growth, multiple and share price all "strongly correlated" to the Asian machine tool series, did not capture the potential strength of the inflection and also jacked up its target price on the firm's shares from 2,800.0p to 4,500.0p.

The analysts said that with Renishaw's shares having "materially underperformed peers" and "currently being out of favour", they saw the stock's current levels as "an attractive entry point".

They also noted that by its implied valuation, Renishaw will be back below long-term averages and that it will inevitably move from having one of the most expensive to the cheapest valuation amongst global automation plays.

The MS Quant team added that mapping prior downcycles in Asian machine tools and Renishaw suggested the firm was capable of delivering "a stronger growth inflection" than current consensus assumed.

"With a near-term inflection in Asia machine tool growth forecast, we believe Renishaw can deliver a stronger than consensus earnings print and drive valuation below long-term average levels by CY21."