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Colfax's (CFX) Shares Rally 33.4% in 6 Months: Here's Why

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Shares of Colfax Corporation (CFX - Free Report) have gained 33.4% over the past six months. The company has also outperformed its industry’s rise of 8.5% over the same time frame.

Colfax, with a market cap of $4.3 billion, has impressed investors with its recent earnings streak. It surpassed estimates in each of the trailing four quarters, the average positive surprise being 8.26%.

This Zacks Rank #3 (Hold) company has several growth drivers in place and enjoys a strong foothold in its served markets. These should help it maintain momentum in the quarters ahead.

What’s Aiding the Stock?

Colfax has been leveraging business opportunities through expansion in emerging markets (China, India, Brazil and others), productivity actions and product developments. The company’s Medical Technology segment stands to benefit from reconstructive product launches as well as improvements in prevention and rehabilitation products. In addition, the company follows a sound capital-allocation strategy — investing in innovation, acquisitions and growing the digital base — which will be beneficial in the long run.

Also, Colfax has been strengthening its product portfolio and gaining access to new customers and regions through addition of assets.In this regard, the company’s acquisition of DJO Global in February 2019 is worth mentioning. The deal has enabled the company to diversify the business structure and enter into the orthopedic solutions industry.  

Trend in Estimate Revisions

The Zacks Consensus Estimate for 2019 earnings has climbed 1.5% over the past 60 days from $1.95 to $1.98. For 2019, six estimates have been being revised upward in the past couple of months against two downward. Also, over the same time frame, the consensus estimate for 2020 has been raised 0.9% to $2.20 with five estimates trending upward versus three downward.

Upbeat Q3 Performance & View

In third-quarter 2019, Colfax reported adjusted earnings per share of 50 cents, marking a 127.3% year-over-year rise. The figure also surpassed the Zacks Consensus Estimate by 8.7%. This earnings improvement is primarily attributable to impressive sales performance, backed by benefits from acquired assets.

For 2019, the company anticipates adjusted earnings in the range of $1.90-$2.00 from continuing operations.

However, Colfax is experiencing escalating cost of sales over time. Notably, in the third quarter of 2019, the company’s cost of sales rose 35.6% year over year while selling, general and administrative expenses jumped 124.2%. Also, high restructuring and other related charges, reflecting year-over-year rise of 46.9% in the third quarter, can be concerning. In addition, the company seems to be more leveraged than the industry, with respective long-term debt-to-capital ratio of 56.8% and 47.3%.

Stocks to Consider

Some better-ranked stocks from the same space are Kaman Corporation KAMN, Barnes Group, Inc. B and DXP Enterprises, Inc. DXPE. While Kaman sports a Zacks Rank #1 (Strong Buy), Barnes Group and DXP Enterprises carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kaman pulled off average positive surprise of 7.72% in the last four quarters.

Barnes Group pulled off average positive surprise of 4.21% in the last four quarters.
DXP Enterprises’ average positive earnings surprise in the last four quarters was 17.67%.

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