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Why Is Colfax (CFX) Up 22.4% Since Last Earnings Report?

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It has been about a month since the last earnings report for Colfax (CFX - Free Report) . Shares have added about 22.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Colfax due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Colfax Beats Q1 Earnings Estimates, Withdraws View

Colfax reported better-than-expected results for the first quarter of 2020, with earnings surpassing estimates by 2.7%. Also, the quarter’s sales beat the consensus estimate by 3.1%.

The machinery company’s adjusted earnings in the reported quarter were 38 cents per share, surpassing the Zacks Consensus Estimate of 37 cents. Moreover, the bottom line gained 2.7% from the year-ago figure of 37 cents.

Revenue Details

In the quarter under review, Colfax’s pro forma revenues were $816.4 million, reflecting a year-over-year decline of 4.3%. The result suffered from a 1.4% decline in the existing businesses (due to the pandemic impact on demand) and a 2.9% impact from forex woes.

However, the company’s revenues surpassed the Zacks Consensus Estimate of $792.2 million.

Further, its sales from continuing operations increased 19.4%, including gains from the DJO Global acquisition.

The company currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below:

Revenues from Fabrication Technology totaled $525.5 million, declining 6.2% year over year. Fall in the existing businesses had an adverse impact of 2.2%, while forex woes negatively influenced by 4%.

Revenues from Medical Technology totaled $290.8 million, reflecting a year-over-year decline of 0.6%. The existing businesses contributed 0.3%, offset by a 0.9% adverse impact of forex woes.

Margin Profile

In the quarter under review, Colfax’s cost of sales grew 10.7% year over year to $468.1 million. Selling, general and administrative expenses increased 17.5% year over year to $291.3 million. It represented 35.7% of revenues.

Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review increased 5.9% year over year to $95.5 million. Also, adjusted EBITA margin decreased 150 bps to 11.7%. Interest expenses in the quarter grew 13.6% year over year to $24.8 million.

Balance Sheet and Cash Flow

Exiting the first quarter, Colfax had cash and cash equivalents of $365.6 million, surging 233.5% from $109.6 million at the end of the last reported quarter. Long-term debt balance increased 10% sequentially to $2,513 million.

Notably, the company repaid borrowings of $364.4 million under its revolving credit facilities and other. Further, it raised $608.7 million in cash through the same means.

In the first quarter, Colfax generated net cash of $56.2 million from operating activities as compared with $72.3 million net cash used in the year-ago quarter. Capital used for purchasing property, plant and equipment was $31.1 million, reflecting a year-over-year rise of 27.7%.

Outlook

The company noted that necessary actions are being taken to ensure workers’ safety, continue serving customers and maintaining healthy liquidity position. Also, cost-management actions (reduction of more than $100 million targeted in the second quarter) have been considered to mitigate some financial stress caused by the pandemic.

The company expects demand to be lowest in the second quarter, while anticipates improvements thereof. Further, it suspended the previously provided projections for 2020.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -71.02% due to these changes.

VGM Scores

Currently, Colfax has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Colfax has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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