Colfax (CFX) Declines 23% YTD: What's Hurting the Stock?

Shares of Colfax Corporation CFX have declined sharply since the beginning of 2020. We believe that the share price decrease primarily reflects investors’ reactions to the company’s exposure to the uncertainties related to the coronavirus outbreak.

The Fulton, MD-based company belongs to the Zacks Manufacturing – General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. The industry currently carries a Zacks Industry Rank #195, which places it in the bottom 23% of more than 250 Zacks industries.

We believe that the industry is suffering from global uncertainties due to the pandemic, unfavorable movements in foreign currencies, softness in industrial production in the United States and strained trade relations due to tariffs.

Year to date, the company’s shares have dipped 22.9% compared with the industry’s decline of 16.1% and the sector’s fall of 14.8%. Notably, the S&P 500 has declined 5.9% during the same period.

The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Factors Affecting the Stock

So far in 2020, Colfax has reported results for fourth-quarter 2019, with an earnings beat of 8.93%, while that for the first quarter of 2020 was 2.70%. It is worth mentioning here that the coronavirus outbreak had adverse impacts on the company’s results in first-quarter 2020 — with revenues declining 4.3% year over year due to reduced demand and forex woes.

Despite better-than-expected results, we believe that the broader market nervousness caused by the pandemic and the uncertainties faced by Colfax caused the decline in its share price year to date. For 2020, the company has suspended previously provided projections, while expects second-quarter demand to be the lowest in the year.

In addition, unfavorable movements in foreign currencies as well as an increase in costs of sales and operating expenses might be concerning for the company. For the second quarter, it expects forex woes to lower sales by 4% year over year.

Also, high debt levels — with a balance of $2,513 million at the end of the first quarter — can be concerning for the company, as it inflates financial obligations. This situation can be detrimental, especially in the prevailing difficult operating conditions. Colfax expects interest expenses to be $25-$30 million in the second quarter, suggesting rise from $24.8 million recorded in the first quarter.

Notably, the company’s cost-reduction measures might be of help — with savings of $100 million expected in the second quarter. Also, revival in product demand in the second half of 2020 and synergistic gains from buyouts might aid.

Currently, the Zacks Consensus Estimate for the company’s earnings is pegged at $1.21 for 2020 and $1.90 for 2021, marking declines of 16% and 0.5% from the respective 30-day-ago figures. Notably, there were seven and three downward revisions for 2020 and 2021, respectively. However, there was one upward revision for 2020 and four for 2021.

Colfax Corporation Price and Consensus

 

Colfax Corporation Price and Consensus

Colfax Corporation price-consensus-chart | Colfax Corporation Quote

Also, earnings estimates for the second quarter have moved down from 18 cents per share to 3 cents in the past month. Such a downward revision in earnings estimates is reflective of bearish sentiments for the company.

Colfax’s Performance Versus Three Peers

The company underperformed three peers in the year-to-date period. Three such stocks are Illinois Tool Works Inc. ITW, Graco Inc. GGG and IDEX Corporation IEX, with respective year-to-date declines of 3.8%, 6.4% and 8.5%.

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