- KeyBanc sees U.S. industrials entering an early 2026 recovery after a long trough, favoring names with demand inflections and structural tailwinds.
- Top picks include Oshkosh (2028 growth and margin targets backed by a $14.6B backlog) and Eaton (AI/data-center and electrification-driven growth with an $18.4B backlog, despite near-term margin noise).
- ITT is highlighted for its planned $4.8B SPX Flow acquisition, expected to close by Q1 2026 and deliver $80M in annual synergies by year three.
- Key risks include interest-rate uncertainty, timing of an access-equipment upcycle, and macro or government procurement disruptions that could delay the rebound.
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The recovery in the industrial sector in early 2026, as forecast by KeyBanc, reflects a combination of cyclicality bottoming out after six to eight quarters of weakness, plus positive indicators from shorter-cycle industrial names. KeyBanc expects several key companies to lead or benefit from this inflection.
Oshkosh Corporation has laid out detailed 2028 financial targets: $13–$14B in revenue, 12–14% adjusted operating margin, $18–22 EPS, and a free cash flow conversion above 90% through the cycle. These projections are supported by a backlog of ~$14.6B (as of March 31, 2025), which is expected to contribute about half the necessary revenue growth for the target period. Margin expansion is anticipated via contract reforms, updates, and product innovation, especially in its Vocational and Transport segments.
Eaton is considered a standout among the industrial growth stories. Its organic growth in 2026 is expected to exceed 7%, powered by simultaneous ramping at 12 manufacturing plants addressing AI, utility, and data center demand. Its record backlog of $18.4B bolsters this outlook. Short-term margin pressure is acknowledged, due to capacity investments and choppy incrementals, but normalization is anticipated in H2.
ITT is executing a transformative acquisition strategy, acquiring SPX Flow for ~$4.8B in cash and stock. The transaction, expected to close by Q1 2026, is forecasted to deliver $80M in synergies by the third year. KeyBanc views its airborne exposure and defense leanings, especially in wide-body aircraft production, as additional upside.
Other picks include RBC Bearings (pressure from commercial aerospace build rates; free cash flow of ~$223M expected in fiscal 2026), Applied Industrial Technologies (shifting mix to higher-margin engineered solutions with annual run rate ~$250M), and United Rentals (leveraging mega-project activity across semiconductors, LNG, data centers).
Strategic Implications & Risks: The optimism around industrials comes with significant caveats—interest rates are still a watchpoint since rate cuts remain uncertain; the timeline for recovery in the access equipment segment at Oshkosh is debated; government shutdowns and federal procurement delays pose risk in segments tied to defense or infrastructure; supply chain or labor constraints and inflation could undermine margin expansion.
Forecasting scenarios hinge on macro policy clarity (especially defense/federal budgets), precision in backlog execution (for example in Oshkosh’s Transport and Vocational segments), and cyclical upturns in infrastructure demand and industrial capex. Monitoring of Inflation, rate movements, and order cadence will be key to confirm or refute KeyBanc’s bullish outlook.
Supporting Notes
- Oshkosh’s 2028 targets: $13–$14B revenue, 12–14% adjusted operating margin, $18–$22 adjusted EPS, >90% free cash flow conversion. Backlog was $14.6B at end of Q1’25, contributing to about half of targeted revenue growth.
- KeyBanc expects Eaton’s organic growth to exceed 7% in 2026, coupled with a record $18.4B backlog. It is simultaneously ramping 12 manufacturing facilities to meet demand, especially from AI, data centers, and utilities.
- ITT’s SPX Flow deal: ~$4.8B acquisition, expected close by end of Q1 2026; ~$80M in annual run-rate cost synergies by year three.
- For RBC Bearings, analysts expect its aerospace/defense gross margins to improve by ~100 basis points as Boeing production normalizes; fiscal 2026 free cash flow is forecast at ~$223M.
- Applied Industrial’s engineered solutions segment has a run-rate of ~$250M annually; growing mix shift is expected to push core income margins to 15% or higher over time.
- United Rentals is positioned heavily in mega-projects (data centers, semiconductors, LNG), with capacity for >$1B in M&A focused on its high-margin specialty rental business.
- Macro risks: Persistent macroeconomic headwinds, interest rate trajectory, uncertainty in government shutdowns/procurement, timing of access equipment upcycle, and distorted data due to prior government shutdowns make forecasting more challenging.