Earnings estimates have been falling for Colfax Corporation (NYSE: CFX) after the company provided weak guidance at its annual investor day conference in December. The company also reported disappointing Q3 results in October that prompted analysts to reduce their estimates as well.
Investors searching for value here will be disappointed too as shares trade at a premium to their industry on two important valuation metrics.
What Colfax Does
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 (~50% of net sales year-to-date) and Fabrication Technology (the other 50%).
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.
Soft Demand, Weak Guidance
Colfax reported disappointing third quarter results on October 23. Adjusted earnings per share of 57 cents missed the Zacks Consensus Estimate by 4 cents. Net sales increased 15% year-over-year to $1.164 billion, but this was also below the consensus of $1.193 billion. And organic sales fell 4% due to weak demand in both segments.
These soft Q3 results prompted a flurry of negative estimate revisions from analysts for both 2014 and 2015.
Additionally, the company provided disappointing guidance for both Q4 and 2015 at its annual investor day conference on December 16. Management expects 2015 adjusted EPS between $2.20-$2.40, which was well below consensus at the time.
This weak guidance prompted another round of negative estimate revisions from analysts, which sent Colfax to a Zacks Rank #5 (Strong Sell).
The 2014 Zacks Consensus Estimate is now $2.13, down from $2.29 ninety days ago. The 2015 consensus is currently $2.31, within guidance, but down from $2.99 over the same period.
You can see the steady decline in estimates in the company’s “Price & Consensus” chart:
Despite weak earnings momentum, the valuation picture for Colfax does not look particularly attractive. Shares trade at a lofty 21x 12-month forward earnings, well above the industry median of 16x. And its enterprise value to cash flow ratio of 15 is also well above the industry median of 11.
The Bottom Line
With falling earnings estimates and premium valuation, Colfax does not appear to offer investors much upside in the near-term.
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