US Electrical Equipment & Multi-Industry: UBS expects resilient industrial demand and AI-linked capital spending to lift estimates despite cost inflation and macro volatility.

Overview

This is UBS's third-quarter preview for 32 of 40 companies in its US Electrical Equipment and Multi-Industry universe. The central conclusion is that industrial growth is holding up better than macro uncertainty might imply: demand, pricing, productivity and tariff refunds should support earnings revisions, with AI and data-center investment providing an important additional growth vector.

Core views

UBS expects estimates to move higher for nearly the full group despite macroeconomic volatility and higher oil prices. The firm forecasts 10% average organic growth, equal to the second-quarter pace, but 100 basis points faster on a two-year stacked basis. It argues that difficult comparisons have not derailed underlying momentum: companies with limited data-center construction exposure are still growing about 5%, versus 2% at the same point last year. Most companies are expected to manage new cost pressures through productivity and pricing, while tariff refunds should provide an additional margin tailwind. UBS maintained or raised estimates for 75% of the companies previewed. The report views AI-related industrial demand and data-center construction as an early-cycle capital-spending theme with substantial runway, notwithstanding a potentially uneven path. This supports particularly constructive views on companies tied to power, cooling, electrical equipment and data-center infrastructure. UBS highlights JCI's $21 billion backlog and potential for double-digit fiscal-2027 organic growth; EMR's expected 5.5% fiscal-2027 organic-growth guidance and low- to mid-teens EPS growth; ETN's potential high-end full-year results and 2027 upside; IR's expected above-1x second-half book-to-bill and improving margins; and NVT, MOD and VRT as beneficiaries of strong data-center demand. For JCI, UBS forecasts fiscal-2027 EPS of $6.46, 7% above consensus, based on 10% organic growth and 40% incremental margins. It expects record backlog to continue increasing and believes productivity could produce margins above the company's 30%+ long-term framework. For EMR, UBS sees about 7% order growth, a $50-60 million benefit from reversing software contract-renewal headwinds in fiscal 2027 and another $50-60 million in fiscal 2028, and a framework pointing to roughly 40% incremental margins. ETN is expected to report toward the high end of guidance, but UBS identifies its expanding capacity base, including a roughly $300 million three-phase transformer plant, as a key 2027 margin watch item. UBS is also positive on IR, where it models third-quarter EPS of $0.92 versus $0.90 consensus. It expects second-half sales and margin improvement from better price-cost, volume leverage and tariff refunds, with a book-to-bill ratio above 1x in the second half serving as a leading indicator for 2027 growth. Its model assumes 3.4% third-quarter organic growth, a 27.0% EBITDA margin and a return toward a 35% incremental-margin exit rate in 2026; applying that margin profile to 6% organic growth would yield 12% EPS growth in 2027. The data-center growth cases are especially prominent. UBS expects MOD's data-center revenue to rise $100 million, or 28%, sequentially in fiscal second-quarter 2027, supporting EBITDA margin expansion to 15.2% from 12.2% in the prior quarter. It forecasts 32% consolidated sales growth and 100% data-center segment growth year over year. For NVT, whose data-center and power-utilities businesses exceed 60% of revenue, UBS forecasts third-quarter EPS of $1.40, above both $1.39 consensus and $1.35-$1.38 guidance, and sees potential for upward revisions. For VRT, UBS models third-quarter EPS of $1.82, up 46% year over year, 35% organic growth and 30% incremental margin. It cites UBS Evidence Lab data showing planned data-center capacity increased 45%, or 70 gigawatts, in 2Q26 versus 1Q26; UBS estimates that scale represents $3.5 trillion of capex at $50 billion per GW and a $245 billion opportunity for VRT at $3.5 million of content per MW. The firm sees broad industrial-recovery support beyond data centers. FAST is expected to generate 16.5% daily sales growth and $0.35 EPS, about 3% above consensus, though price-cost headwinds keep its 23% incremental-margin forecast below its 25% long-term target. PH is expected to benefit from strengthening industrial demand and aerospace, with fiscal first-quarter EPS of $8.24, 1% above consensus, on 8% organic growth. GTES is viewed as a beneficiary of a cyclical recovery, personal-mobility penetration and a ramping data-center business; UBS models organic growth of 6% in 3Q and 7.5% in 4Q, with 2027 EBITDA margin expansion of more than 100 basis points. Near-term outcomes remain selective. UBS expects MMM and DOV to be broadly in line, with MMM's pricing and productivity offsetting about $500 million of tariff and oil-related headwinds but not necessarily prompting immediate estimate revisions. Residential HVAC names CARR, LII and TT face steel, aluminum and other inflation pressure that may constrain near-term margins, though UBS expects a more favorable growth backdrop in 2027. CARR is modeled at $0.77 third-quarter EPS, 13% organic growth and a 16.5% operating margin, with 2027 EPS of $3.42, 4% above consensus. LII is expected to report $7.50 EPS in line with consensus, but its margins face tough comparisons, absorption pressure and Heat Controller acquisition dilution. The clearest caution is SPXC, for which UBS models $2.04 quarterly EPS, roughly 7% below consensus, as HVAC supply-chain costs and inflation pressure margins. Revenue may approach the high end of guidance, but full-year earnings are expected near the low end. UBS remains constructive over the medium and long term because of data-center demand and OlympusMAX, but stresses that the supply-chain strain caused by strong demand is a key monitoring point. UBS also sees near-term margin pressure for ESAB, FTV and OTIS, and expects AOS to deliver a subdued quarter amid weaker North America growth, continued China weakness and higher material and freight costs. Across the sector, UBS frames cost inflation as manageable but unevenly timed. Diversified industrials buy and assemble semifinished goods, so raw-material moves affect results with a lag. Pricing, productivity, tariff refunds and volume leverage can mitigate the impact, but margin performance remains vulnerable where pricing has not yet caught up, supply chains are constrained, or new capacity and investment spending are ramping.

Analysis framework

UBS begins with a top-down comparison of organic growth, two-year growth trends, cost pressure and estimate revisions across its coverage universe. It then applies company-specific earnings models using sales growth, orders, book-to-bill, backlog, price-cost, margin incrementals, tariff refunds, valuation multiples and comparisons with consensus estimates. The report assesses how demand, capacity, pricing, productivity and supply-chain conditions translate into earnings and equity implications.

Methodology notes

• Industry AnalysisSupply-demand framework

  Demand, capacity, backlog, orders and supply-chain conditions

  UBS evaluates whether resilient demand, AI/data-center investment and available capacity can support growth, while identifying shortages and supply-chain constraints that may delay revenue or pressure margins.

• Industry AnalysisVolume-price decomposition

  Organic growth, volume, pricing and price-cost analysis

  The report separates volume and pricing effects and examines whether price increases and productivity can offset materials, freight and tariff-related costs.

• Valuation methodsP/E and PEG Valuation

  Forward P/E multiple analysis

  UBS compares several companies' next-twelve-month or future-year P/E multiples with sector levels and historical averages when discussing valuation and equity upside or downside.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Johnson Controls International (JCI)

  Positive data-center and building-controls growth setup supported by record backlog and productivity.

  Strengths

  $21 billion backlog; UBS forecasts 10% fiscal-2027 organic growth, 40% incrementals and $6.46 EPS.

  Comparison

  Fiscal-2027 EPS forecast is 7% above consensus.

  Risks

  Backlog conversion and guidance could fall short of UBS expectations.

• Ingersoll Rand (IR)

  Positive setup from improving volumes, margins and strong second-half bookings.

  Strengths

  Expected second-half book-to-bill above 1x, better price-cost and tariff refunds.

  Weaknesses

  Third-quarter incremental margins remain depressed in UBS's model.

  Comparison

  3Q EPS forecast of $0.92 versus $0.90 consensus.

  Risks

  Recovery depends on order momentum and normalization of margins.

• Vertiv Holdings (VRT)

  Data-center infrastructure beneficiary.

  Strengths

  UBS forecasts 35% organic growth and $1.82 third-quarter EPS, supported by capacity expansion and a strong demand pipeline.

  Weaknesses

  APAC margins may remain below consolidated levels as the Malaysia greenfield ramps.

  Comparison

  EPS forecast is within guidance and growth is expected to be strong across all three segments.

  Risks

  AI-related volatility and concerns over data-center development pace.

• nVent Electric (NVT)

  Data-center and power-utilities growth beneficiary.

  Strengths

  These businesses exceed 60% of consolidated revenue; UBS expects potential upward estimate revisions.

  Weaknesses

  Continued investment limits incremental margins.

  Comparison

  3Q EPS forecast of $1.40 versus $1.39 consensus and $1.35-$1.38 guidance.

  Risks

  Difficult prior-year order comparisons and execution on capacity ramp.

• SPX Technologies (SPXC)

  Long-term data-center opportunity offset by near-term HVAC margin pressure.

  Strengths

  Strong data-center demand and OlympusMAX opportunity support UBS's medium- and long-term view.

  Weaknesses

  Supply-chain costs and inflation are expected to soften HVAC margins in 3Q and 4Q.

  Comparison

  3Q EPS forecast of $2.04 is about 7% below consensus.

  Risks

  Persistent supply-chain constraints, cost inflation and delayed price recovery.

Key data

• Average organic growth10%UBS forecast across the coverage universe; equal to 2Q growth and 100 bps faster on a two-year stacked basis.
• Estimate actions75%Share of previewed companies for which UBS maintained or raised estimates.
• Non-data-center-exposed company growth5%Compared with 2% at the same time last year.
• JCI fiscal 2027 EPS$6.467% above consensus; based on 10% organic growth and 40% incremental margins.
• VRT 3Q EPS$1.82Up 46% year over year and within guidance of $1.77-$1.83.
• VRT 3Q organic sales growth35%UBS forecast, with a 30% incremental margin.
• Planned data-center capacity increase70 GWUBS Evidence Lab estimate for the 2Q26 increase versus 1Q26, equal to 45% growth.
• SPXC 3Q EPS$2.04About 7% below consensus, reflecting HVAC supply-chain and inflation headwinds.

Impact & implications

UBS believes the group can sustain growth and see broadly higher earnings estimates even in a rough macro environment, with AI/data-center infrastructure, electrification and an emerging industrial recovery as principal supports. The report differentiates companies with accelerating demand and operating leverage from those where cost inflation, difficult comparisons, residential HVAC exposure or supply-chain constraints may delay margin recovery.

Risks

• Unexpected changes in global macroeconomic conditions, currencies, interest rates or commodity prices could affect cyclical industrial demand and costs.
• Company execution, M&A, acquisition integration, labor relations, competitive changes and regulatory developments may impair results.
• Tariffs, environmental-policy changes, capacity additions and pricing pressure can affect margins.
• Technology disruption, e-commerce and channel disintermediation are sector risks.
• Supply-chain constraints and inflation may continue to pressure near-term margins, particularly in HVAC-related businesses.

What to watch

• Whether pricing and productivity continue to offset materials, freight, oil and tariff-related cost pressure.
• Order growth, book-to-bill ratios and backlog conversion as indicators of 2027 demand.
• Data-center capacity additions, supply availability and demand momentum.
• The timing and scale of tariff refunds and their contribution to margins.
• 2027 margin implications from capacity expansions, especially at ETN, and supply-chain normalization at SPXC and MOD.