Morgan Stanley upgrades Weir Group to equalweight

Morgan Stanley has upgraded Weir Group to equalweight and revised its price target to 1,150p.

The FTSE 250 engineering company said on Wednesday that third quarter order input was down 29% year-on-year and 8% lower compared to the second quarter, mainly due to a significant drop in activity levels across oil, gas, power and industrial markets.

On Thursday the company was upgraded from underweight by Morgan Stanley in March with a price target of 1,200p after “a lack of focus on O&G equipment pricing”.

“Although our concerns over the impact of a more prolonged commodity downcycle on Weir’s margin profile have not reduced, we were surprised at how quickly consensus expectations have adjusted around 3Q results.

“Full details on consensus are not yet available, but our 2016 EPS forecast of 76p is not sufficiently below market estimates to merit an UW.”

Morgan Stanley said it expects margins of 11% next year, down from 22.7% in 2014, and forecasts a 42% reduction in operating profit to £259m.

“Although we do not know that 2016 will definitively be a ‘trough’, we expect the market to work on that basis in the near term and Weir to trade accordingly.”

Traders took the note to heart, with shares up 13p (1.13%) to 1,160p at 1403 GMT.