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Rexnord (RXN) Up 22.2% in Past 3 Months: What's Driving the Rally?

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Rexnord Corporation’s performance has been impressive over the past three months, which is evident from a 22.2% increase in its share price. Presence across diversified end markets, healthy demand for products, buyouts, footprint-repositioning programs and strong capital-allocation strategies supported positive market sentiments for the company.

The Milwaukee, WI-based company, with $7.3 billion of market capitalization, belongs to the Zacks Manufacturing - Electronics industry. The company currently carries a Zacks Rank #2 (Buy).

In the past three months, Rexnord has outperformed its industry’s growth of 8.3% and the S&P 500’s rally of 7.1%.

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Factors Favoring the Stock

Rexnord’s diversified business structure has been allowing it to mitigate the adverse impacts of weakness in one end market with strength across others. The company is working diligently to expand its growth prospects in the hygienic market. Driven by improving end-market demand, it expects high-teens growth in the Water Management segment’s sales and mid-teens percentage increase in the Process & Motion Control segment’s sales on a year-over-year basis for third-quarter 2021.

The company is focused on strengthening its businesses through the addition of assets. For instance, it acquired Just Manufacturing Co. and Canada-based Hadrian Inc. in 2020. Both assets have been complementing the company’s Water Management platform. In April 2021, Rexnord acquired Advance Technology Solutions and integrated the acquired assets with the Water Management segment. In the second quarter of 2021, acquired assets boosted the company’s sales by 3%.

Rexnord remains committed to rewarding shareholders through share-buyback programs and dividend payouts apart from using its fund for acquiring lucrative businesses. In the first half of 2021, it paid out dividends worth $21.6 million, reflecting growth of 11.3% year over year. Also, the company repurchased shares worth $0.9 million over the same period.

Its focus on improving operational productivity and supply chain optimization is likely to improve margins and financial performance in the quarters ahead. In the second quarter, its adjusted operating margin grew 120 basis points to 19.4% on a year-over-year basis.

The Zacks Consensus Estimate for the company’s earnings is pegged at $2.04 for 2021, up 3% from the 60-day-ago figure. The consensus estimate for 2022 earnings stands at $2.37, having moved 3.9% north over the same time frame.

Key Picks

Some better-ranked stocks from the same space are AZZ Inc. (AZZ - Free Report) , ABB Ltd (ABB - Free Report) and Eaton Corporation plc (ETN - Free Report) . While AZZ currently sports a Zacks Rank #1 (Strong Buy), ABB and Eaton carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

AZZ pulled off a positive earnings surprise of 21.24%, on average, in the trailing four quarters.

ABB pulled off a positive earnings surprise of 19.00%, on average, in the trailing four quarters.

Eaton pulled off a positive earnings surprise of 10.87%, on average, in the trailing four quarters.

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