We have issued an updated research report on Colfax Corporation (CFX - Free Report) on Sep 11.
The Fulton, MD-based company manufactures and provides products and services related to medical technology and fabrication technology. It presently has a market capitalization of $4 billion and a Zacks Rank #3 (Hold).
The company belongs to the Zacks Manufacturing – General Industrial industry, which in turn comes under the ambit of the Zacks Industrial Products sector. The industry is among the top 50% (with rank of 125) of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
There are a number of factors that are influencing Colfax’s prospects. A brief discussion on important factors is discussed below:
Price Performance & Segmental Tailwinds: Market sentiments have been in favor of Colfax for quite some time now. Its stock price has increased 15.7% in the past three months compared with the industry’s growth of 12.3%.
Going forward, solid product offerings and focus on innovation might aid Colfax’s performance. For the Fabrication Technology segment, savings from restructuring actions, business in emerging markets, investments in infrastructure development might be beneficial. Solid product offerings too are boons. Products launched in the past few months include Aristo 500ix & Robust Feed U6, GCE ProControl and ROGUE ES 180i.
For the Medical Technology segment, increase in population, sports, aging, active lifestyles and other factors might be advantageous. Also, it stands to gain from solid products — with products like EMPOWR Partial Knee, Donjoy X-ROM Post-Op Knee Brace and Motion iQ launched in the second and third quarters of 2020.
Multiple Tailwinds: In the wake of the coronavirus outbreak, Colfax is committed toward ensuring the safety of workers, keep serving its customers and having a sound liquidity position. Also, it initiated multiple cost-reduction actions to curb the impact of the financial stress caused by the pandemic.
For the third quarter of 2020, the company anticipates generating higher profits than the previous quarter. It predicts earnings before interest, tax and amortization margin to be in low 30%, while expects generating positive cash in the quarter.
Higher Earnings Estimates: Colfax’s earnings estimates have been revised upward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $1.35 for 2020, reflecting growth of 10.7% from the 60-day-ago figure. The same for 2021 has increased 5.3% to $1.98 during the same period.
It is worth noting here that nine upward revisions were recorded for 2020 and eight positive revisions for 2021 in the past 60 days. There was one downward revision for 2020 and none for 2021 during the same period.
Also, the consensus estimate for the third quarter of 2020 is pegged at 39 cents, reflecting growth from 31 cents per share in the past 60 days. The revision came on the back of seven upward revisions versus one downward.
Pandemic Woes: The company’s top line suffered from lower demand (due to the pandemic) in second-quarter 2020. Being worried about the uncertainties related to the extent of the pandemic on its operations, Colfax kept its financial projections suspended for 2020.
Leverage and Liquidity: High debts and weak abilities to pay related financial obligations can be concerning for Colfax. At the end of second-quarter 2020, the company’s long-term debts were $2,220.9 million, while its cash and cash equivalents were just $66.4 million.
In addition, the company’s interest coverage ratio (TTM) decreased from 1.8X at the end of the first quarter to 1.4X at the end of the second quarter. On the other hand, its return on capital was 3.5% at the second-quarter end, lower than 4.4% at the first-quarter end.
Woes Related to International Presence: Colfax carries out its operations in multiple countries, including the Middle East, the United States, Europe, Asia and South America.
International diversification has exposed the company to macroeconomic challenges, unfavorable movements in foreign currencies, local competitive pressure and geopolitical issues. Forex woes adversely impacted the company’s second-quarter sales by 3.9% year over year.
Stocks to Consider
Three better-ranked stocks in the industry are Tennant Company (TNC - Free Report) , Altra Industrial Motion Corp. (AIMC - Free Report) and Roper Technologies, Inc. (ROP - Free Report) . While Tennant currently sports a Zacks Rank #1 (Strong Buy), both Altra Industrial and Roper carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 380.00% for Tennant, 76.47% for Altra Industrial and 10.11% for Roper.
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Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
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