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Zacks Investment Research downgraded Colfax Corporation (CFX - Analyst Report) to a Zacks Rank #5 (Strong Sell) on February 23, 2013.

Why the Downgrade?

The $3.97 billion worth diversified machinery company posted its financial results for the fourth quarter and year 2012 on Feb 6, 2013. Adjusted net income per share in the quarter stood at 42 cents, up 27.3% year over year and 7.7% above the Zacks Consensus Estimate of 39 cents.

Despite the beat in net earnings, poor revenue yield raised our concerns for the stock. Pro forma revenue in the quarter fell 2.1%, due primarily to a 2.5% fall in organic revenue and a negative 2.9% impact from foreign currency translation. The impact of these was partially offset by a 3.3% positive contribution from acquisitions. Adjusted operating margin in the quarter plummeted 380 basis points.

Apart from the financials for the fourth quarter, guidance for the first quarter 2013 included expectation of flat organic revenue growth and earnings per share to approximate its comparable quarter’s earnings a year-ago. Impacts from higher operating profit are likely to get offset by higher interest expense and share count.

The financial results for the quarter induced downward revisions in earnings estimates for the company. The Zacks Consensus Estimate for 2013 went down by 5.6% to $1.85 while that for 2014 decreased by 6.2% to $2.44 per share in the last 30 days. Also, for 2013 and 2014, we have an Earnings ESP (Read: Zacks Earnings ESP: A Better Method) of -0.54% and -0.82%, respectively.

Other Stocks to Consider

Other stocks to watch out for in the industry are Altra Holdings, Inc. (AIMC - Snapshot Report) with a Zacks Rank #1 (Strong Buy) while Metso Corp. (MXCYY) and Atlas Copco AB (ATLKY) have a Zacks Rank #2 (Buy).

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