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Colfax's (CFX) Growth Prospects Solid, Runs Near-Term Risks

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We have issued an updated research report on machinery company Colfax Corporation on Feb 7. The company, with a $4.95 billion market capitalization, specializes in products and services related to gas and fluid handling, and fabrication technology.

Over the last one month, Colfax’s shares yielded 13.61% return, outperforming 4.19% gain seen by the Zacks categorized Machinery General Industrial industry.

Colfax’s financial performance has been impressive in the last four quarters, with an average positive earnings surprise of 8.06%. In the last quarter, the company’s earnings of 46 cents per share exceeded the Zacks Consensus Estimate of 44 cents by 4.55%. Also, in the last 30 days, the Zacks Consensus Estimate increased 0.6% to $1.64 per share for 2017 and 1.6% to $1.85 per share for 2018.       

In addition, we believe that Colfax holds solid long-term potential, backed by a diversified product portfolio and customer base, ranging from commercial to governmental customers. Also, the company has operations in various countries, including the U.S., Europe, Asia, the Middle East and South America. In the next three to five years, the company targets achieving organic growth (CAGR) in the range of 1−2% above Gross Domestic Product, and segment margins in the mid-teens level.

Colfax has initiated certain cost-saving strategies for improving its margin profile. The company achieved roughly $50 million incremental cost savings from its cost-reduction programs in 2016. Also, the company has initiated additional cost savings strategies that will result in approximately $50 million in incremental cost savings in 2017.

Despite such positives, we believe that Colfax’s near-term growth momentum is restricted by its exposure to headwinds including uncertain global economic conditions, unfavorable forex movements and stiff competition. In 2016, the company’s net sales and orders declined 3.8% and 3.4%, respectively, year over year due to adverse foreign currency translation.

Also, delays or difficulties in procuring raw materials including metals, castings, motors, seals and bearings from suppliers both in the U.S. and international markets might prove unfavorable for the company’s business.

Colfax currently carries a Zacks Rank #3 (Hold). Better-ranked machinery stocks include Altra Industrial Motion Corp. , Chart Industries Inc. (GTLS - Free Report) and RBC Bearings Incorporated . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Altra Industrial Motion Corporation’s earnings estimates for 2017 have improved over the last 60 days. Average earnings surprise for the last four quarters is a positive 8.06%.
 
Chart Industries Inc. has an average positive earnings surprise of 548.51% for the last four quarters.

RBC Bearings Incorporated’s financial performance has been impressive, with an average positive earnings surprise of 1.60% for the last four quarters. Also, earnings estimates for fiscal 2018 have been revised upward, over the last 60 days.

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