IDEX's (IEX) Prospects Encouraging Despite Escalating Costs

On Dec 23, we issued an updated research report on IDEX Corporation IEX.

Over the past month, this Zacks Rank #3 (Hold) stock has returned 6.5% compared with the industry’s growth of 2.1%.

Scenario at Present

IDEX has been benefiting from its diversified business structure, solid product portfolio, execution abilities and growth investments. Also, the company has been steadily strengthening business through acquisitions. In this regard, in July 2019, IDEX acquired Velcora Holding AB with its Steridose and Roplan businesses. The buyout has been strengthening the sealing solutions platform. Notably, acquired assets had a positive impact of 1% on sales in the third quarter of 2019.

Also, the company’s healthy cash flow allows management to return higher values to its shareholders. Notably, in the first three quarters of 2019, it repurchased shares worth $54.7 million and paid out dividends totaling $109.2 million. The quarterly dividend rate currently stands at 50 cents per share (a hike of 16% was announced in May 2019). Share count exiting the third quarter was roughly 76.6 million. We believe that further share buybacks by the company will help in improving its bottom line.

However, in the last five years (2014-2018), the company’s cost of sales rose 2.6% (CAGR), while operating expenses grew 1.3% (CAGR). Notably, its cost of sales increased 0.5% year over year in the first three quarters of 2019. As noted by the company, rise in engineering costs played spoilsport in the quarter. We believe that any unwarranted rise in the cost of sales (due to ongoing trade disputes with foreign countries and inflation in commodity prices) and operating expenses might be detrimental to IDEX's performance, going forward.

Key Picks

Some better-ranked stocks from the same space are Kaman Corporation KAMN, Barnes Group, Inc. B and DXP Enterprises, Inc. DXPE. While Kaman currently sports a Zacks Rank #1 (Strong Buy), Barnes Group and DXP Enterprises carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Kaman delivered a positive earnings surprise of 7.72%, on average, in the trailing four quarters.

Barnes Group delivered a positive earnings surprise of 4.21%, on average, in the trailing four quarters.

DXP Enterprises pulled off a positive earnings surprise of 17.67%, on average, in the trailing four quarters.

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