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IDEX Poised to Gain From Inorganic Growth, Outlook Bullish

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IDEX Poised to Gain From Inorganic Growth, Outlook Bullish

With a flexible yet disciplined focus on cost and productivity, IDEX (IEX) intends to optimize the cost structure, increase competitiveness and reallocate resources to improve profitability in the future.

On Mar 6, we updated the research report on industrial goods manufacturer, IDEX Corporation IEX.

In December last year, IDEX inked a definitive agreement to acquire German firm, thinXXS Microtechnology AG, for an undisclosed amount. Post acquisition, thinXXS will form an integral part of the Health and Science Technologies segment of IDEX and will strengthen its presence in the global life science and veterinary markets with world-class products and solutions.

Located in Zweibrücken, Germany, thinXXS is a premier manufacturer of disposable micro-fluidic components for the point of care, veterinary and life science markets. It also develops various customer-specific solutions for applications in immunology, clinical chemistry, DNA analytic or cell-based research.

The acquisition is a strategic fit for IDEX’s core optics and scientific fluidics product portfolio that serves life science customers. The deal is the second of its kind in this space and will strengthen the market position of the company as an undisputed leader in micro-fluidic technology.

Acquisitions have been IDEX’s most favored mode for penetrating unexplored markets, which extend its geographic reach, fill technology gaps and strengthen its foothold in the existing markets while expanding product lines.

The company aims to increase its market exposure and improve sales mix by continually developing new products. With a flexible yet disciplined focus on cost and productivity, it intends to optimize the cost structure, increase competitiveness and reallocate resources to improve profitability in the future. IDEX has outperformed the industry in the last three months with an average return of 5% against a decline of 1% for the latter.



IDEX is also striving to improve productivity and expand its businesses in the emerging markets by focusing on organic growth. The company reported organic growth of 9% in the fourth quarter of 2017 owing to a diligent execution of operational plans. In addition, IDEX generated solid order levels and witnessed significantly higher demand in the North American industrial markets with a marked improvement in larger capital projects.

With solid quarterly results and robust demand patterns, IDEX has given bullish full-year 2018 earnings guidance. Earnings for 2018 are currently anticipated to lie within the $4.90-$5.10 per share range with earnings for the first quarter expected to be $1.20-$1.24. The long-term growth prospects of the company, therefore, appear to be quite encouraging.

However, IDEX operates in a highly competitive industry. Maintaining and improving its competitive position entail continued investment in manufacturing, engineering, quality standards, marketing, customer service and support, and distribution networks. This involves huge recurring R&D expenses that increase its operating costs. This also reduces IDEX’s price control over its products, which often leads to loss of market share, decline in top-line growth and lower operating margin.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Other stocks in the industry worth considering include DXP Enterprises, Inc. DXPE, Graco Inc. GGG and EnPro Industries, Inc. NPO, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DXP Enterprises has topped estimates twice in the trailing four quarters with an average positive earnings surprise of 148%.

Graco has a long-term earnings growth expectation of 10.5%. It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 18.5%.

EnPro Industries has a long-term earnings growth expectation of 15.5%.

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