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Solid End-Market Demand to Aid IDEX (IES) Despite Cost Woes

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IDEX Corporation (IEX - Free Report) specializes in fluid and metering technologies, fire, safety and other products, and health and science technologies. The company is based in Lake Forest, IL, and has a market capitalization of $17 billion. It presently carries a Zacks Rank #3 (Hold).

The company belongs to the Zacks Manufacturing - General Industrial industry, which comes under the ambit of the Zacks Industrial Products sector. The industry is among the top 23% (with the rank of 58) of more than 250 Zacks industries.

In the past three months, the company’s shares have gained 2.2% against the industry’s decline of 1.5%. Notably, the S&P 500 expanded 5.4%, while the sector decreased 1.4% in the same timeframe.

 

Zacks Investment Research
Image Source: Zacks Investment Research

 

There are a number of factors that are influencing IDEX’s prospects. A brief discussion on the important factors and earnings estimates is given below:

Financial Projections: IDEX is well-poised to gain from investments in growth opportunities, solid product offerings, diversified end-market exposure and solid execution abilities.

For 2021, the company increased its earnings projections to $6.05-$6.20 per share from the previously stated $5.65-$5.95. The revised mid-point of $6.125 is higher than $5.19 recorded in 2020. Earnings for the second quarter are expected to be $1.60-$1.63 per share. Organic sales for the year are anticipated to grow 9-10% year over year versus the previously mentioned growth of 6-8%. Organic sales growth rate for the second quarter is expected to be 18-20%.

Diversified Operations: The company operates in various markets, including energy, water & wastewater, general industrial, fire and rescue, chemical, life science, food, and agriculture. Gains in some markets help offset the weakness in one or more markets.

Strengthening demand in chemical and agriculture markets along with recovering water and industrial businesses are expected to aid the Fluid & Metering Technologies segment in 2021. Likewise, improvement in the fire/rescue market and healthy business in automotive and dispensing markets are anticipated to boost the Fire & Safety/Diversified Products segment. Growing semiconductor, food/pharma and automotive markets are predicted to benefit the Health & Science Technologies segment. Demand improvement in analytical instrumentation, industrial and life science markets are likely to prove advantageous.     

Capital Allocation: The company uses parts of its capital to make acquisitions, and reward shareholders with dividend and share buybacks. It acquired Abel Pumps L.P. in March and added Airtech Group as well as US Valve Corporation and other entities to its portfolio in June. Abel Pumps buyouts have been strengthening the pump platform from IDEX’s Fluid & Metering Technologies segment. Airtech Group is believed to boost opportunities for the Health & Science Technology segment.

As regard to returning value to its shareholders, the company paid out dividends totaling $38.2 million, while refrained from buying back shares in the first quarter of 2021. In the year-ago quarter, dividends totaling $38.7 million were distributed and shares worth $108.9 million were bought back.

Cost Woes: In the first quarter of 2021, a year-over-year increase of 11.4% in the cost of sales and a 2.1% hike in selling, general and administrative expenses adversely impacted IDEX’s margins and profitability. High taxes had 5 cents of adverse impact on earnings.

The company expects tax rate of 23% for the second quarter and 2021, suggesting a rise from 22.6% reported in the first quarter. Also, corporate expenses are expected to total $21 million and $74 million in the second quarter and 2021, respectively. The pandemic-related woes and supply-chain-related issues are also expected to play spoilsport in 2021.

International Operations & Market Woes: IDEX carries out its operations in multiple countries, including the United States, China, Brazil and South Korea. International diversification has exposed it to unfavorable movements in foreign currencies, geopolitical issues, local competitive pressure and macroeconomic challenges.

The company expects weakness in the energy markets to be concerning for the Fluid & Metering Technology segment in 2021.

Earnings Estimate Revisions: The Zacks Consensus Estimate for IDEX’s earnings per share is currently pegged at $1.62 for second-quarter 2021, reflecting an increase of 1.3% from the 60-day-ago figures. The estimate for 2021, pegged at $6.26, reflects growth of 1.1% from the 60-day-ago number.

IDEX Corporation Price and Consensus

 

IDEX Corporation Price and Consensus

IDEX Corporation price-consensus-chart | IDEX Corporation Quote

The consensus estimate for 2022 is pegged at $6.89, suggesting no change from the 60-day-ago figure.

Stocks Worth Considering in the Industry

Some better-ranked stocks in the industry are Nordson Corporation (NDSN - Free Report) , Chart Industries, Inc. (GTLS - Free Report) and Applied Industrial Technologies, Inc. (AIT - Free Report) . While Nordson presently sports a Zacks Rank #1 (Strong Buy), both Chart Industries and Applied Industrial 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 the companies have improved for the current year. Further, earnings surprise for the last reported quarter was 28.48% for Nordson, 8.82% for Chart Industries and 35.64% for Applied Industrial.