Rexnord Corporation (RXN) recently announced its board of directors’ approval for a $200 million share buyback program. The news, coming within a week of the company’s third-quarter fiscal 2015 (ended Dec 31, 2014) results, is expected to boost investors’ confidence in the stock.
As disclosed, Rexnord has been authorized to repurchase the shares in open market or privately negotiated transactions or through other suitable means. The company plans to use its existing operating cash flow to fund the buyback.
We believe such share buyback program is reflective of Rexnord’s strong cash flow as well as its commitment to return value to shareholders. In the nine months ended Dec 31, 2014, the company generated cash of $167 million from its operating activities, soaring 78.8% from $93.4 million generated in the year-ago comparable period.
In addition, the repurchase program will enable Rexnord to negate the dilutive impact of its stock-compensation plan. In fiscal 2015, the company anticipates to incur approximately $12 million as stock option expense.
Over the last 7 days, the Zacks Consensus Estimate for Rexnord has decreased 2% to $1.47 per share for fiscal 2015 and 6.6% to $1.69 for fiscal 2016. The downward revision was due to reduced adjusted earnings per share guidance, given the worsening impact of foreign currency translation.
With a market capitalization of $2.7 billion, Rexnord Corp. presently carries a Zacks Rank #4 (Sell). Better-ranked stocks in the machinery industry include II-VI Inc. (IIVI), Regal Beloit Corp. (RBC) and Pioneer Power Solutions, Inc. (PPSI). While both II-VI Incorporated and Regal Beloit sport a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions carries a Zacks Rank #2 (Buy).
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