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Colfax Completes Divestment of Air & Gas Handling Business

Zacks Equity Research

Colfax Corporation CFX yesterday announced successful completion of the divestment of its Air & Gas Handling business to an associate of KPS Capital Partners, LP. The transaction value was approximately $1.8 billion. Notably, Colfax signed the divestment agreement in May 2019.

Shares of Colfax gained roughly 1.54% yesterday, closing the trading session at $29.06.

The Air and Gas Handling segment deals with the supply of centrifugal and axial fans, rotary heat exchangers, gas compressors, ventilation control systems and software, and aftermarket services to a vast customer base worldwide.

For the trailing 12 months ended Mar 29, 2019, Air and Gas Handling’s operating profit was $90 million while adjusted earnings before interest, tax, depreciation and amortization (EBITDA) was $200 million.

Inside the Headlines

As noted, the transaction value of $1.8 billion consists of cash proceeds of $1.6 billion (after adjustment of estimated taxes and transaction-related expenses) and assumption of liabilities and minority interest.

Colfax intends to use the cash proceeds from the divestment for paying down debts. Exiting the second quarter of 2019, the company had long-term debts of approximately $4,078.2 million, reflecting 1% growth from the previous quarter. Higher debts also increased the company’s interest expenses by 156.4% year over year.

Colfax believes that this divestment will help it focus on its core operations and improve profitability. Also, the transaction will support buyouts in its Fabrication Technology and Medical Technology segments.

Colfax’s Inorganic Initiatives

We believe that the above-mentioned transaction is consistent with the company’s policy of strengthening portfolio through inorganic moves, including divestments and acquisitions.

In February 2019, Colfax acquired DJO Global, marking its entry into the orthopedic solutions industry. Notably, Colfax’s Medical Technology segment was formed after the completion of the DJO Global buyout. The segment accounted for 34.8% of the company’s net sales in the second quarter of 2019.

Zacks Rank, Estimates and Price Performance of Colfax

The company, with approximately $3.4-billion market capitalization, currently carries a Zacks Rank #3 (Hold).

In the past 60 days, earnings estimates for Colfax have been revised downward. The Zacks Consensus Estimate for its earnings is pegged at $1.95 for 2019 and $2.26 for 2020, suggesting declines of 11.8% and 1.7% from the respective 60-day-ago figures.

Colfax Corporation Price and Consensus

 

Colfax Corporation Price and Consensus
Colfax Corporation Price and Consensus

Colfax Corporation price-consensus-chart | Colfax Corporation Quote

In the past three months, the company’s share price has increased 7.4% against the industry’s decline of 1.9%.

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Stocks That Warrant a Look

Some better-ranked stocks in the industry are Crawford United Corporation CRAWA, Mitsubishi Heavy Industries, Ltd. MHVYF and Chart Industries, Inc. GTLS. While Crawford United and Mitsubishi Heavy currently sport a Zacks Rank #1 (Strong Buy), Chart Industries carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Current-year earnings estimates for Chart Industries, Crawford United and Mitsubishi Heavy suggest year-over-year growth of 49.5%, 36.2% and 2.6%, respectively. Also, Chart Industries and Crawford United’s earnings estimates have improved for the current year in the past 60 days.

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