We believe that Colfax Corporation is a solid choice for investors seeking exposure in the machinery space.
 
The stock, with roughly $3.9-billion market capitalization, was upgraded to a Zacks Rank #1 (Strong Buy) on Aug 10. The company delivered better-than-expected results in three of the last four quarters while recording in-line results in one. Average earnings surprise was a positive 7.91%.

Why the Upgrade?

We are providing a snapshot of how Colfax fared in second-quarter 2018. The company’s earnings of 61 cents per share surpassed the Zacks Consensus Estimate by 15.1%. Net sales went up 9.1% year over year, on the back of synergistic gains from acquired assets and forex tailwinds. Orders were strong, totaling $359.6 million, for the Air and Gas Handling segment while backlog at the quarter end stood at $837.5 million.

Colfax is making investments for expanding its business in attractive markets, boosting its innovative capabilities, growing digital base and acquiring businesses. We believe these investments will prove beneficial in the years ahead. Moreover, the popularity of the company’s existing brands — ESAB (under the Fabrication Technology business) and Howden (under the Air & Gas Handling business) — adds to its strength. For 2018, Fabrication Technology’s organic sales are projected to grow 5-8% on the back of favorable pricing and impressive market conditions, while growth in orders and efficient cost structure, will boost profitability for Air & Gas Handling.

Further, acquired assets play an important role for Colfax. In the first half of 2018, buyouts added roughly 8.8% to sales growth. The company acquired welding-wire operations of Sandvik Materials Technology in the first quarter of 2018, thereby, strengthening the Fabrication Technology segment. Moreover, it agreed to acquire Europe-based Gas Control Equipment in the second quarter. The Gas Control Equipment, to be integrated Fabrication Technology segment, is projected to generate in excess of $100 million annualized revenues in the future.

For 2018, Colfax increased adjusted earnings per share projection from $2.05-$2.20 to $2.15-$2.30. The revised guidance reflects earnings growth potential of at least 24%. The effective tax rate for the year is predicted to be 20-22% versus 23-24% expected earlier. Restructuring savings are predicted to be in excess of $30 million.

In the past 7 days, the company’s earnings estimates for 2018 have been revised upward by eight brokerage firms while that for 2019 by five firms. The Zacks Consensus Estimate now stands at $2.23 for 2018 and $2.41 for 2019, reflecting growth of 4.2% and 2.6% from the respective 60-day-ago tallies.

Colfax Corporation Price and Consensus