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Rexnord (RXN) Displays Strong Prospects, Headwinds Persist

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Zacks Equity Research
·3 min read
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On Apr 14, we issued an updated research report on Rexnord Corporation RXN.

In the past three months, this Zacks Rank #3 (Hold) stock has returned 12.5% compared with the industry’s growth of 3.3%.

Present Scenario

Rexnord has been benefiting from operational execution, supply-chain optimization and surge in e-commerce business. Also, the company’s business diversity has been allowing it to mitigate the adversities in one end market with strength across others. Notably, it is working diligently to expand its prospects in the hygiene market.

Also, the company believes in strengthening and expanding its businesses through acquisitions. Notably, it acquired Just Manufacturing Co. and Canada-based Hadrian Inc. in calendar 2020. Both acquired assets have been integrated with Rexnord’s Water Management segment. Notably, acquired assets boosted the company’s sales by 1% in the quarter ended Dec 31, 2020.

Moreover, Rexnord is committed to rewarding shareholders through share repurchases and dividend payouts. For instance, in the nine months ended December 2020, the company paid out dividends worth $28.8 million to shareholders besides repurchasing shares worth $59.3 million.

However, weakness in the Process & Motion Control segment, primarily in the aerospace business poses a major concern for Rexnord. For the first quarter of 2021, it anticipates sales for Process & Motion Control to decline in the low-double-digit range on a year-over-year basis.

Further, the company has been experiencing rising costs and expenses over time. Notably, in the quarter ended Dec 31, 2020, its cost of sales and selling, general and administrative expenses recorded an increase of 2.9% and 14.5%, respectively. Higher costs and expenses might prove detrimental to Rexnord’s performance in the quarters ahead.

Key Picks

Some better-ranked stocks are II-VI Incorporated IIVI, Regal Beloit Corporation RBC and The Middleby Corporation MIDD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

II-VI delivered a positive earnings surprise of 83.68%, on average, in the trailing four quarters.

Regal Beloit delivered a positive earnings surprise of 31.56%, on average, in the trailing four quarters.

Middleby delivered a positive earnings surprise of 22.98%, on average, in the trailing four quarters.

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