Stock to Avoid: EnPro Industries - Analyst Blog

Zacks Investment Research downgraded EnPro Industries, Inc. NPO to a Zacks Rank #5 (Strong Sell) on May 3, 2014. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of underperforming the broader market.

Why the Downgrade?

EnPro Industries' first quarter 2014 results failed to impress its shareholders and the market as evidenced by a downward revision in earnings estimates and a fall of 1.98% in the company's share price since May 1, 2014. A snapshot of the quarter's results is provided below.

The company reported adjusted earnings per share of 39 cents as against 56 cents in the year-ago quarter. The bottom-line result also lagged the Zacks Consensus Estimate of 54 cents by 27.8%. Revenues at $287.2 million were relatively flat year over year.

Gross profit increased 2.4% year over year while an 80 basis points (bps) hike was recorded in the gross margin. Operating expenses grew 7.6% offsetting the improvement achieved at the gross profit level and led to a fall of nearly 15.9% in the operating income. Operating margin in the quarter declined 110 bps.

In the last 7 days, the Zacks Consensus Estimate for EnPro Industries has decreased 6.1% to $2.29 per share for 2014 and by 3.4% to $2.83 per share for 2015.

Weak results and lowered earnings estimates coupled with a negative earnings surprise of 2.83% for the trailing four quarters have made us skeptical about EnPro Industries' performance in the coming quarters. Currently, the company has an Earnings ESP of -11.79% for 2014 and -2.83% for 2015.

Other Stocks to Consider

EnPro Industries presently has a market capitalization of $1.79 billion. Other stocks worth considering in the industry include Gorman-Rupp Co. GRC, Illinois Tool Works Inc. ITW and IDEX Corp. IEX. While Gorman-Rupp carries a Zacks Rank #1 (Strong Buy), Illinois Tool Works and IDEX both hold a Zacks Rank #2 (Buy).