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Colfax (CFX) to Divest Fluid Handling Operations to CIRCOR

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Machinery company Colfax Corporation (CFX - Free Report) announced that it has agreed to sell its Fluid Handling business to CIRCOR International, Inc. The transaction proceeds will be approximately $860 million.

Before discussing the divestment, a brief description of Colfax’s Fluid Handling business might be useful. Products offered by this business, including pumps, fluid handling systems and controls, and specialty valves, are marketed by Colfax Fluid Handling. Prime brands include Allweiler and Imo. Its results are grouped under the company’s Gas and Fluid Handling segment. In the 12 months ended Jun 30, 2017, the to-be-divested assets generated revenues of $463 million and earnings before interest, tax, depreciation and amortization of $64 million.

Divestment Deal

Per Colfax’s signed definitive agreement, the total consideration of $860 million will include cash component of $542 million. In addition, CIRCOR will issue approximately 3.3 million of its common shares to Colfax while will also assume net pension liability of $150 million (value as of Dec 31, 2016). Colfax will be holding approximately 16% of CIRCOR’s issued and outstanding shares upon completion of the aforementioned payment mode.

Subject to the fulfilment of customary closing conditions, Colfax anticipates the divestment to be completed in the fourth quarter of 2017. Till then, the Fluid Handling business will be considered as discontinued operations.

Colfax anticipates recording a material gain upon completion of the deal.

Inorganic Expansion Fuels Growth

We believe that such dispositions are in sync with the company’s inorganic ways of strengthening its core businesses. The company aims to enhance its ESAB and Howden businesses through meaningful acquisitions. Building new business platforms is also a priority.

Notably, in March 2017, Colfax agreed to acquire Siemens AG’s Siemens Turbomachinery Equipment GmbH business. The strategic buyout of these assets would reinforce Colfax’s Howden trading platform. In addition, the company acquired two assets in the second quarter, strengthening its welding process analytics and robotic welding torches operations in the Fabrication Technology segment. Buyouts included TBi, a leader in robotic torch technology, and HKS, a developer of advanced process analytics and sensors.

In the last three months, Colfax’s shares have yielded 10.6% return, outperforming 7.2% gain recorded by the industry it belongs to.

Zacks Rank & Stocks to Consider

Colfax currently has a $5.2 billion market capitalization and carries a Zacks Rank #3 (Hold). Over the last 60 days, the Zacks Consensus Estimate for the stock has increased 0.6% to $1.73 per share for 2017 and by 1.5% to $2.04 for 2018.

Colfax Corporation Price and Consensus

Colfax Corporation Price and Consensus | Colfax Corporation Quote

Some better-ranked stocks in the same space are Sun Hydraulics Corporation (SNHY - Free Report) , Kadant Inc. (KAI - Free Report) and EnPro Industries (NPO - Free Report) . All these stocks sport a Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Sun Hydraulics’ earnings estimates for 2017 and 2018 were revised upward in the last 60 days. Also, the company performed well in the last quarter, delivering a positive earnings surprise of 33.33%.

Kadant’s average earnings surprise for the last four quarters was a positive 19.29%. Also, earnings expectations for 2017 and 2018 improved over the past 60 days.

EnPro Industries’ earnings estimates for 2017 and 2018 were revised upward in the last 60 days.

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