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IDEX (IEX) Worth Buying on Organic Prospects and Buyouts

Zacks Equity Research
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The U.S. economy has bright growth prospects in 2018, with roughly 2.9% expansion predicted by the International Monetary Fund. Policy changes related to taxes, a healthy job market, expanding manufacturing sector, development investments and strengthening housing market have been conducive to its growth.

We classify the U.S. equity universe into 16 broad sectors, one of those being Industrial Products. This sector currently occupies the sixth position in the Zacks sector list and has yielded 7.7% return in the past year.

The sector gains from healthy U.S. economy as well as prospering global economy. Moreover, technologically-advanced manufacturing processes raise the demand for more innovative industrial products. It’s worth noting here that impressive growth in U.S. industrial production points toward favorable operating conditions for industrial product manufacturers.

For 2018, the sector’s earnings are predicted to increase 24.3% in 2018 on revenue growth of 9.5%.

Investors interested in gaining exposure in the sector may choose stocks that have Zacks Rank #1 (Strong Buy) or #2 (Buy). Of many investment-friendly options, we believe that adding IDEX Corporation IEX to the portfolio will be a smart choice. The stock currently sports a Zacks Rank #2.

Let’s delve deeper and discuss why IDEX is a suitable investment option.

Bottom-Line Performance & Projections: IDEX’s financial performance has remained better than expected in the past four quarters. Average earnings surprise is a positive 4.37%. This average includes the impact of 6.87% earnings beat recorded in the second quarter of 2018. Further, the company’s bottom line increased 12.6% year over year on the back of 10.6% growth in revenues and diligent execution of productivity initiatives.

For 2018, IDEX anticipates gaining from solid organic growth opportunities and acquired assets. It increased its earnings per share guidance from $5.05-$5.20 expected earlier to $5.27-$5.35.

Driven by solid performance and impressive outlook, earnings estimates for 2018 on the company have been increased by 10 brokerage firms while that for 2019 has been raised by nine firms in the past 60 days. Currently, the Zack Consensus Estimate for earnings is pegged at $5.32 for 2018 and $5.73 for 2019, reflecting growth of 2.5%, and 1.8% from the respective 60-day-ago tallies.

IDEX Corporation Price and Consensus

IDEX Corporation Price and Consensus | IDEX Corporation Quote


Further, the company’s shares have yielded 10.3% return in the past three months, outperforming 5.2% growth recorded by the industry.

Solid Top Line: IDEX’s top-line growth of 10.6% compared with the last-reported quarter was driven by organic sales growth of 9% and forex gains of 2%. Also, the company recorded sales beat of 1.9%. Performance was healthy in the Fluid & Metering Technologies, Health & Science Technologies, and Fire & Safety/Diversified Products segments. Orders increased 9% year over year while backlog, at the quarter end, stood at $5 million.

For 2018, the company anticipates organic sales to grow 7% versus 5-6% predicted earlier. Also, top-line growth is above 6% growth recorded in 2017.

In the past 60 days, the Zacks Consensus Estimate for revenues on the stock is pegged at $2.5 billion for 2018 and $2.6 billion for 2019, reflecting year-over-year growth of 8.4% and 5%, respectively.

Dividends: IDEX is an ardent believer in rewarding shareholders handsomely, especially through share buybacks and dividend payments. The company used $33 million for dividend payments and $20.5 million for repurchasing shares in the second quarter of 2018. It’s worth mentioning here that the company hiked its quarterly dividend rate by 16% in April 2018.

Acquisitions: Another interesting aspect about IDEX is its acquisitive nature. Over time, the company has solidified its product portfolio through the addition of assets. Worth mentioning is the acquisition of thinXXS Microtechnology AG in December 2017. This buyout has solidified the company’s CiDRA Precision Services business, and added more vigor to its microfluidic and nanofluidic capabilities. Moreover, the acquisition of Phantom Controls in June 2018 has boosted its Fire & Safety/Diversified Products segment while Finger Lakes Instrumentation buyout in July 2018 has benefitted its Health & Science business.

Debt Profile: IDEX’s long-term debt at the end of 2017 was $859 million, reflecting a year-over-year decline of 15.3%. This balance remained intact for the first half ended June 2018. Here, it’s worth noting that total debt/total equity declined from 45.5% at the end of 2017 to 43.2% at the end of the first half of 2018.

Moreover, the company’s debt profile is better compared with the industry, with its debt/equity being lower than 84.1% for the industry.

Other Stocks to Consider

Other top-ranked stocks in the industry are Altra Industrial Motion Corp. AIMC, Colfax Corporation CFX and Barnes Group Inc. B. While both Altra Industrial Motion and Colfax sport a Zacks Rank #1, Barnes Group carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for each of these stocks improved for the current year and the next year. The average positive earnings surprise for the last four quarters was 4.01% for Altra Industrial Motion, 7.91% for Colfax and 6.88% for Barnes Group.

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