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Colfax (CFX) Displays Bright Prospects, Headwinds Remain

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On Mar 27, we issued an updated research report on Colfax Corporation .

In the past six months, this Zacks Rank #3 (Hold) stock has lost 28%. Also, the industry has recorded a decline of 21.8%, over the same time frame.



Existing Business Scenario

Colfax will likely benefit from its focus on strengthening segmental businesses along with its productivity actions, innovation investments and product developmental process in the upcoming quarters. Also, a sturdy traction in its Medical Technology segment on the back of progress in the reconstructive and prevention & rehabilitation product lines will bolster its top-line performance in the quarters ahead.

The company completed the buyout of DJO Global in February 2019. This marked its entry into the orthopedic solutions industry. Notably, acquisitions had a positive contribution of 0.1% revenue growth in the fourth quarter of 2019. In addition, Colfax completed the divestment of its Air & Gas Handling business in September 2019. This transaction will enable the company in achieving its leverage target and improve profitability apart from helping in backing buyouts in its Fabrication Technology and Medical Technology segments.

However, over the past few quarters, Colfax has been experiencing escalating costs of sales. Notably, in the third quarter and the fourth quarter of 2019, its cost of sales rose 35.6% and 25.2%, respectively, on a year-over-year basis. In the same period, its selling, general and administrative expenses jumped 124.2% and 96.6%, respectively, year over year. In addition, high restructuring and other related charges, reflecting a year-over-year rise of 46.9% and 92.6% in the third quarter and the fourth quarter, respectively, can be concerning.

Further, high debt level remains a concern for the company. For instance, it had a long-term debt of $2,284.2 million at fourth-quarter end, up 91.6% from the 2018-end level. Higher debts also escalated its interest expenses by 142.5% year over year in 2019.

Stocks to Consider

Some better-ranked stocks from the same space are Graco Inc. (GGG - Free Report) , Tennant Company (TNC - Free Report) and Broadwind Energy, Inc. (BWEN - Free Report) . While Graco and Tennant sport a Zacks Rank #1 (Strong Buy), Broadwind Energy carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Graco delivered positive earnings surprise of 0.40%, on average, in the trailing four quarters.

Tennant delivered positive earnings surprise of 26.60%, on average, in the trailing four quarters.

Broadwind Energy delivered positive earnings surprise of 10.42%, on average, in the trailing four quarters.

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