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Here's Why You Should Hold on to Colfax (CFX) Stock for Now
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We have issued an updated research report on Colfax Corporation on Feb 20. Exposure in emerging markets, focus on innovative products and buyouts gains will benefit Colfax in the years ahead. However, industry competition, rising costs and expenses remain prime concerns.
Colfax carries a Zacks Rank #3 (Hold). Its market capitalization is approximately $4.1 billion.
Colfax’s financial performance was better than expected in two of the last four quarters and in line with expectations in the other two quarters. Average earnings surprise was a positive 4.74%. Its Zacks Consensus Estimate is currently pegged at $2.12 for 2018 and $2.36 for 2019, representing growth of 2.9% and 3.5% from their respective tallies 30 days ago.
Below we briefly discussed the company’s potential growth drivers and possible headwinds.
Factors Favoring Colfax
Buyouts Keys to Expansion: Over time, acquired assets have helped Colfax leverage benefit from easy penetration into unexplored markets and expanded product offerings. In 2017, TBi and HKS were added to the company’s portfolio. While TBi is a leader in robotic torch technology, HKS is a developer of advanced process analytics and sensors. Since these were acquired, the buyouts have been strengthening the company’s welding process analytics and robotic welding torches operations in the Fabrication Technology segment. In addition, acquisition of Siemens AG’s Siemens Turbomachinery Equipment GmbH business has strengthened the company’s Howden trading platform.
Notably, acquired assets increased the company’s revenues by 2.7% in 2017.
Long-Term Growth Potential Solid: Colfax’s focus toward the expansion of existing platforms and gaining exposure in new ones will work in its favor in the years ahead. Its two solid platforms are Fabrication Technology and Air & Gas Handling. These businesses have been serving customers in the oil & gas, general industrial, mining, marine and many others end markets. Also, the company is working hard on improving its operations in emerging markets including China, India, Brazil and others.
Over the long run (three to five years), the company anticipates organic growth in the range of 1-2% above GDP and segment margins in the mid-teens level.
Impressive Projections for 2018: For 2018, Colfax anticipates that its Fabrication Technology business will gain from new products and its initiatives directed to improve customer service and operational efficiency while its Air & Gas Handling business will improve on the back of investment in growth markets and restructuring initiatives.
Adjusted earnings per share in the year are anticipated to be within the $2.00-$2.15 range, increasing from $1.74 recorded in 2017. Organic revenue growth is predicted to be flat to up 2%.
Factors Working Against Colfax
Rising Costs & Expenses, High Debts Remain Issues: Colfax is currently dealing with adverse impacts of rising costs and expenses. In the fourth quarter of 2017, its cost of sales grew 7.8% year over year while selling, general and administrative expenses expanded 17%. Margin profile was weak in the quarter as gross margin slipped 20 basis points (bps) year over year and adjusted operating margin fell 200 bps. Moreover, the company’s long-term debt balance at the quarter-end was approximately $1.1 billion. We believe, if unchecked, rising costs and expenses and high debt levels can prove to be detrimental to the company’s profitability in the quarters ahead.
Threat From Industry Competition and International Expansion: Colfax’s Air and Gas Handling business faces stiff competition from companies offering similar products and services or those producing different items for same uses. Also, other companies operating in the welding space provide stiff competition to its Fabrication Technology business.
In addition, international expansion has exposed the company to risks arising from adverse movements in foreign currencies and geopolitical issues. Also, as the company has to procure raw materials from suppliers both in the United States and international markets, it remains vulnerable to price fluctuations associated with policies and issues of the source countries.
Headwinds From Global Uncertainty: End markets served by Colfax are highly susceptible to global economic conditions. Lower level of industrial activities and difficult financial conditions in countries, where the company operates, will adversely hurt its sales, earnings and cash flow.
Share Price Performance & Key Picks
In the last three months, Colfax’s shares have lost 9%, underperforming 3.3% gain recorded by the industry.
Applied Industrial Technologies has pulled off an average positive earnings surprise of 10.97% over the last four quarters. Also, earnings estimates for fiscal 2018 (ending June 2018) and fiscal 2019 (ending June 2019) have been revised upward over the last 60 days.
Dover Corporation has delivered an average positive earnings surprise of 7.26% in the trailing four quarters. Also, bottom-line expectations for 2018 and 2019 have improved over the past 60 days.
Roper Technologies’ financial performance has been impressive, with an average positive earnings surprise of 3.12% in the last four quarters. Also, earnings estimates for 2018 and 2019 have been revised upward over the last 60 days.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
Image: Bigstock
Here's Why You Should Hold on to Colfax (CFX) Stock for Now
We have issued an updated research report on Colfax Corporation on Feb 20. Exposure in emerging markets, focus on innovative products and buyouts gains will benefit Colfax in the years ahead. However, industry competition, rising costs and expenses remain prime concerns.
Colfax carries a Zacks Rank #3 (Hold). Its market capitalization is approximately $4.1 billion.
Colfax’s financial performance was better than expected in two of the last four quarters and in line with expectations in the other two quarters. Average earnings surprise was a positive 4.74%. Its Zacks Consensus Estimate is currently pegged at $2.12 for 2018 and $2.36 for 2019, representing growth of 2.9% and 3.5% from their respective tallies 30 days ago.
Below we briefly discussed the company’s potential growth drivers and possible headwinds.
Factors Favoring Colfax
Buyouts Keys to Expansion: Over time, acquired assets have helped Colfax leverage benefit from easy penetration into unexplored markets and expanded product offerings. In 2017, TBi and HKS were added to the company’s portfolio. While TBi is a leader in robotic torch technology, HKS is a developer of advanced process analytics and sensors. Since these were acquired, the buyouts have been strengthening the company’s welding process analytics and robotic welding torches operations in the Fabrication Technology segment. In addition, acquisition of Siemens AG’s Siemens Turbomachinery Equipment GmbH business has strengthened the company’s Howden trading platform.
Notably, acquired assets increased the company’s revenues by 2.7% in 2017.
Long-Term Growth Potential Solid: Colfax’s focus toward the expansion of existing platforms and gaining exposure in new ones will work in its favor in the years ahead. Its two solid platforms are Fabrication Technology and Air & Gas Handling. These businesses have been serving customers in the oil & gas, general industrial, mining, marine and many others end markets. Also, the company is working hard on improving its operations in emerging markets including China, India, Brazil and others.
Over the long run (three to five years), the company anticipates organic growth in the range of 1-2% above GDP and segment margins in the mid-teens level.
Impressive Projections for 2018: For 2018, Colfax anticipates that its Fabrication Technology business will gain from new products and its initiatives directed to improve customer service and operational efficiency while its Air & Gas Handling business will improve on the back of investment in growth markets and restructuring initiatives.
Adjusted earnings per share in the year are anticipated to be within the $2.00-$2.15 range, increasing from $1.74 recorded in 2017. Organic revenue growth is predicted to be flat to up 2%.
Factors Working Against Colfax
Rising Costs & Expenses, High Debts Remain Issues: Colfax is currently dealing with adverse impacts of rising costs and expenses. In the fourth quarter of 2017, its cost of sales grew 7.8% year over year while selling, general and administrative expenses expanded 17%. Margin profile was weak in the quarter as gross margin slipped 20 basis points (bps) year over year and adjusted operating margin fell 200 bps. Moreover, the company’s long-term debt balance at the quarter-end was approximately $1.1 billion. We believe, if unchecked, rising costs and expenses and high debt levels can prove to be detrimental to the company’s profitability in the quarters ahead.
Threat From Industry Competition and International Expansion: Colfax’s Air and Gas Handling business faces stiff competition from companies offering similar products and services or those producing different items for same uses. Also, other companies operating in the welding space provide stiff competition to its Fabrication Technology business.
In addition, international expansion has exposed the company to risks arising from adverse movements in foreign currencies and geopolitical issues. Also, as the company has to procure raw materials from suppliers both in the United States and international markets, it remains vulnerable to price fluctuations associated with policies and issues of the source countries.
Headwinds From Global Uncertainty: End markets served by Colfax are highly susceptible to global economic conditions. Lower level of industrial activities and difficult financial conditions in countries, where the company operates, will adversely hurt its sales, earnings and cash flow.
Share Price Performance & Key Picks
In the last three months, Colfax’s shares have lost 9%, underperforming 3.3% gain recorded by the industry.
Some stocks worth considering in the industry are Applied Industrial Technologies, Inc. (AIT - Free Report) , Dover Corporation (DOV - Free Report) and Roper Technologies, Inc. (ROP - Free Report) . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Applied Industrial Technologies has pulled off an average positive earnings surprise of 10.97% over the last four quarters. Also, earnings estimates for fiscal 2018 (ending June 2018) and fiscal 2019 (ending June 2019) have been revised upward over the last 60 days.
Dover Corporation has delivered an average positive earnings surprise of 7.26% in the trailing four quarters. Also, bottom-line expectations for 2018 and 2019 have improved over the past 60 days.
Roper Technologies’ financial performance has been impressive, with an average positive earnings surprise of 3.12% in the last four quarters. Also, earnings estimates for 2018 and 2019 have been revised upward over the last 60 days.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +18.8% from 2016 - Q1 2017, our top stock-picking screens have returned +157.0%, +128.0%, +97.8%, +94.7%, and +90.2% respectively.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - Q1 2017, the composite yearly average gain for these strategies has beaten the market more than 11X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>