On Jan 6, 2015, we issued an updated research report on Colfax Corporation (CFX). Despite promising long-term growth prospects, the company is exposed to certain headwinds that can impair its performance in the near term.
Uncertain economic conditions will affect Colfax’s top-line performance in the quarters ahead. Organic revenue growth is likely to range from flat to down 2% in 2015, including flat to 2% growth in Fabrication Technology and 2% to 4% decline in both Howden and Colfax Fluid Handling businesses. Also, falling global oil prices will suppress the activities of oil companies and thus, hamper Colfax’s portion of revenues from the oil and gas industry.
In addition, international presence has exposed the company to risks arising from foreign currency movements and geopolitical issues, among others. Adverse impact of foreign currency translation on revenues is estimated at $180−$190 million, affecting operating profit by $17−$18 million in 2015.
Moreover, Colfax has failed to deliver good results in the past few quarters, as evident from a 1.3% dip in organic revenue in the first three quarters of 2014. Difficult operating conditions are likely to weigh on the fourth-quarter results as well. The company’s share price has declined roughly 19% in 2014, while having shed 7.4% so far in 2015.
The Zacks Consensus Estimate for Colfax is currently pegged at $2.13 for 2014 and $2.31 for 2015, representing year-over-year growth of 4.4% and 8.3%, respectively.
Colfax Corporation, currently, has a market capitalization of $5.9 billion. The company faces stiff competition from other players in the industry, including The Middleby Corp. (MIDD), Ingersoll-Rand Plc (IR) and The Babcock & Wilcox Co. (BWC).
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