Earnings estimates have been falling for Colfax Corporation (CFX) after the company reported Q3 earnings and revenue that fell well short of expectations.
The decline in consensus estimates has been strong enough to send Colfax to a Zacks Rank #5 (Strong Sell) stock, placing it in the bottom 5% of all stocks that Zacks ranks based on earnings momentum.
Since I last wrote about Colfax as Bear of the Day on January 8, 2015, shares have plunged by more than 40%. Despite this, shares still don’t look like a screaming value here.
Colfax Corporation provides gas- and fluid-handling and fabrication technology products and services to commercial and governmental customers under the Howden, Colfax Fluid Handling and ESAB brands. It reports net sales through two segments: Gas & Fluid Handling and Fabrication Technology.
Its gas and fluid handling business supplies products such as pumps, fluid-handling systems and controls, specialty valves, heavy-duty centrifugal and axial fans, rotary heat exchangers and gas compressors, which serves a variety of end markets. Its fabrication business supplies welding equipment and consumables, cutting equipment and consumables and automated welding and cutting systems.
Weak Q3 Results
Colfax reported disappointing third quarter results on October 14. Adjusted earnings per share of 24 cents missed the Zacks Consensus Estimate by 41%. It was a 58% decline over the same quarter last year.
Net sales fell 17% year-over-year to $969 million, which was also below the consensus of $1.006 billion. The strong U.S. dollar was a headwind, but organic sales also fell 7% due in part to weak end market demand.
Falling Estimates
Following disappointing Q3 results, analysts revised their estimates significantly lower for both 2015 and 2016. This sent Colfax to a Zacks Rank #5 (Strong Sell).
The 2015 Zacks Consensus Estimate is now $1.53, down from $1.86 thirty days ago. The 2016 consensus is currently $1.65, down from $2.12 over the same period.
You can see the steady decline in estimates in the company’s “Price & Consensus” chart:
Valuation
Despite a sharp decline in its stock price this year, the valuation picture for Colfax still does not look particularly attractive. Shares trade at 17x 12-month forward earnings, and there is no indication that those forward earnings estimates won’t stop declining. And its enterprise value to EBIT ratio of 14 is well above the industry median of 11.
The Bottom Line
With falling earnings estimates and premium valuation, Colfax still does not appear to offer investors much upside.
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