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Colfax Hits a New 52-Wk High

Zacks Equity Research

Positive reactions to a series of events in the last fortnight prompted shares of Colfax Corporation (CFX) to reach a new 52-week high of $70.36 during the trading session on Feb 19. The new 52-week high reflects an increase over $69.81 reached on Feb 13.

Colfax Corporation closed the trading on Feb 19 at $69.58. The trading volume for the session was 0.87 million shares. The company provided a solid year-to-date return of 63.6%. It is a diversified industrial manufacturing and engineering company and currently holds a Zacks Rank #3 (Hold). Strong fundamentals of the company along with solid earnings growth expected for 2014 and 2015 warrants further upside potential for Colfax.

Growth Drivers

Colfax Corporation reported impressive fourth-quarter 2013 results on Feb 6. Adjusted earnings per share were 59 cents, way above the year-ago quarter’s earnings of 33 cents. However, bottom-line result was in line with the Zacks Consensus Estimate.

Revenue increased 14% driven by solid organic growth and contribution from acquisitions. Gas and Fluid Handling and Fabrication Technology segments reported 10% and 3% revenue growth respectively. Backlogs were strong at $1.6 billion, while orders grew 5.3%. Adjusted operating margin expanded 190 basis points to 10.6%.

For 2014, Colfax anticipates organic revenue growth in the range of 1–3% and earnings per share are anticipated within the $2.40–$2.65 range.

Acquisitions remain an integral part of Colfax’s expansionary policy. Within a week of releasing its fourth-quarter 2013 results, the company agreed to acquire Irving Place Capital’s Victor Technologies Holdings, Inc. for $947.3 million, including assumption of debt. Victor is a renowned manufacturer of advanced cutting, gas control and specialty welding solutions. These assets will compliment the company’s ESAB business and will help its expansion in new markets and applications. Colfax anticipates the transaction to be accretive to adjusted earnings per share and free cash flow immediately.

To fund this acquisition, Colfax has offered to the public 8 million common shares (versus the earlier offer of 6.5 million) at $68.75. Also, holder of the company’s Series A Perpetual Convertible Preferred Stock, BDT CF Acquisition Vehicle, LLC, has opted for the conversion of its preferred shares holding into equity shares of the company.
Impressive fourth-quarter 2013 results along with acquisition announcement and public offering of common shares have driven the company’s share price up by 9.5% since Feb 6.

Earnings Growth Rates Show Potency

The Zacks Consensus Estimate for Colfax Corporation is at $2.59 for 2014 and $3.13 for 2015, reflecting year-over-year growth of 27.1% and 19.6% respectively. Also, earnings in the next five years are expected to grow by 18.1%.

Colfax currently has a market capitalization of $7.1 billion. Some better-ranked stocks in the industry include Altra Industrial Motion Corp. (AIMC), Barnes Group Inc. (B) and Middleby Corporation (MIDD), all of which carry a Zacks Rank #2 (Buy).

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