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Colfax to Gain from Strong End Markets & Buyouts Amid Risks

Zacks Equity Research

On Aug 30, we issued an updated research report on Colfax Corporation CFX.

In the past three months, this Zacks Rank #3 (Hold) stock has gained 6.2%, compared with industry’s rise of 0.7%.

Existing Scenario

Colfax is likely to benefit from its focus on strengthening segmental businesses and productivity actions, product developments as well as expansion in emerging markets. Also, the company follows a sound capital-allocation strategy. Its focus on investing in innovation, business expansion in attractive markets, and growing the digital base is likely to prove conducive to its growth.

Also, the company intends to become more competent on the back of meaningful business acquisitions. In this regard, it has completed the buyout of DJO Global in February 2019. This acquisition was in sync with Colfax's efforts to diversify the business structure and enable its entry into the orthopaedic solutions industry. Notably, acquisitions added 63% to Colfax's sales growth in the second quarter of 2019. The company predicts that DJO Global and other buyouts will continue to be beneficial in the quarters ahead.

However, escalating costs have been a major cause of concern for the company over the past few quarters. For instance, Colfax’s cost of sales jumped 33.2% in the first six months of 2019 while the same rose 44.3% in the second quarter. The company predicts corporate expenses to be approximately $60-$65 million in 2019. We believe that rising costs and expenses, if unchecked, will be detrimental to the company's margin.

In addition, analysts have also become increasingly bearish on Colfax. In the past 30 days, the Zacks Consensus Estimate for 2019 earnings has declined from $2.26 to $1.96 on account of six downward estimate revisions against two upward.

Stocks to Consider

Some better-ranked stocks from the same space are DXP Enterprises, Inc. DXPE, Graham Corp. GHM and Roper Technologies, Inc. ROP. All these companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DXP Enterprises pulled off average positive surprise of 18.06% in the last four quarters.

Graham’s earnings surprise in the last reported quarter was a positive 100.00%.
Roper came out with an average positive surprise of 6.92% in the last four quarters.

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