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Colfax Buys DJO Global, Enters Orthopedic Solutions Industry

Zacks Equity Research
Donaldson's (DCI) earnings in third-quarter fiscal 2019 lag estimates but improve year over year on sales growth and lower taxes. It lowers projections for fiscal 2019.

Colfax Corporation CFX has acquired orthopedic solutions provider, DJO Global Inc., for $3.15 billion. Notably, the other party to the transaction, the seller, is equity funds (private) managed by Blackstone Group.

Vista, CA-based DJO Global is a provider of medical technologies related to the orthopedic field. Its products — reconstructive implants, bracing, devices used in rehabilitation and software — as well as related services help in restoring natural movements of patients. The company’s major brands, which are globally recognized include Dr. Comfort, DJO Surgical and Exos, among others.

Acquisition Rationale

The acquisition is in sync with Colfax’s efforts to diversify its business structure. The deal will pave the way for the company to enter the orthopedic solutions industry.

Notably, DJO Global’s assets are likely to form a segment within Colfax. In the 12 months after the completion of the buyout, Colfax anticipates earnings per share (adjusted) accretion from the acquired company. In addition, it is likely to enjoy tax benefits from DJO Global’s $800-million operating loss carry forwards.

Colfax has also announced that it will discuss its outlook for 2019 in a conference call, scheduled on Mar 12.

Existing Business Scenario

Colfax's acquisitions spree is anticipated to be conducive to core business. The company acquired Sandvik Materials Technology's welding-wire operations for Fabrication Technology and made two buyouts for the Air & Gas Handling system in the first three quarters of 2018. Also, the company added Europe-based Gas Control Equipment to the Fabrication Technology segment in October 2018. It is worth mentioning here that buyouts added 7.9% to sales growth in 2018.

We also believe that Colfax is poised to benefit from solid product portfolio and growing business opportunities in emerging markets.

However, increasing costs and expenses, softness in the Air & Gas Handling platform, and high debts might adversely impact the company's performance. Unfavorable movements in foreign currencies might continue affecting results.

Zacks Rank & Stocks to Consider

Colfax currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same space are Atlas Copco AB ATLKY, Dover Corporation DOV and Chart Industries, Inc. GTLS. While Atlas Copco sports a Zacks Rank #1 (Strong Buy), Dover and Chart Industries carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atlas Copco delivered average earnings surprise of 7.45% in the trailing four quarters.

Dover pulled off a positive average earnings surprise of 6.59% in the trailing four quarters.

Chart Industries delivered a positive average earnings surprise of 23.60% in the last four quarters.

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