Nordson Corporation NDSN continues to struggle with the headwinds that have marred its operational performance over the past few quarters. We expect softness in product lines in electronics end markets, among other factors, to hinder the company’s growth.
It’s not surprising that the stock has also put up a dismal show in the recent times. In the past six months, Nordson has lost 1.9%, wider than the industry’s decline of 1.5%. Further, the Zacks Consensus Estimate for fiscal 2019 (ending October 2019) earnings has moved south over last seven days from $6.07 to $5.94. This indicates exceedingly bearish analyst sentiment, reflected by four downward estimate revisions versus none upward, over the same time frame.
Read on to find the major factors hurting the Zacks Rank #4 (Sell) company’s prospects and why it may be prudent to avoid the stock at the moment.
Factors at Play
Nordson is experiencing weakness in product lines in electronics end markets due to minimal customer innovation, and the uncertainties related to the ongoing trade dispute. As a matter of fact, the company expects the softness to persist in its electronics end markets in the near term.
Also, high debt levels have been a concern for the company. In the last five fiscal years (2014-2018), the company’s long-term debts recorded an increase of 13.5% (CAGR). Notably, at the end of the third quarter of fiscal 2019 (ended Jul 31, 2019), the metric was high at $1,179.9 million. Net interest expenses in the quarter were roughly $11 million. Further increases in debt levels can raise the company’s financial obligations.
Moreover, given the company’s extensive international presence, its business remains exposed to unfavorable movements in foreign currencies and geopolitical issues. For instance, in the fiscal third quarter, adverse impact from foreign currency movements lowered sales by 2%. As a matter of fact, for fiscal 2019, the company anticipates unfavorable foreign currency movements to have an adverse impact of about 2% on sales growth.
Further, on a P/E (TTM) basis, the stock has been overvalued compared with the industry with respective tallies of 24.1x and 19.4x for the past three-month period. Notably, the multiple is currently trading higher than the industry's three-month highest level of 20.5x. This makes us cautious about the stock.
Stocks to Consider
Some better-ranked stocks from the same space are DXP Enterprises, Inc. DXPE, Roper Technologies, Inc. ROP and Graham Corporation GHM. 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 surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 18.06%.
Roper Technologies outpaced estimates in each of the preceding four quarters, the average positive earnings surprise being 6.92%.
Graham’s earnings surprise in the last reported quarter was 100.00%.
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