Rexnord Downgraded to Strong Sell on Market Headwinds

Zacks Investment Research downgraded Rexnord Corporation RXN to a Zacks Rank #5 (Strong Sell) on Oct 9, 2015. Going by the Zacks model, companies holding a Zacks Rank #5 have strong chances of underperforming the broader market.

Why the Dowangrade?

We believe macroeconomic headwinds, including a weak global economic outlook and soft commodity prices, continue to cloud the near- to medium-term outlook of industrial machine manufacturers. Difficult operating conditions have weakened the demand for industrial products, leading to heavy de-stocking by the U.S. industrial distribution channels.

For fiscal 2016 (ending Mar 2016), Rexnord anticipates decline of mid-single digit in the U.S. Industrial Distribution end market, low-double digits in global mining, and high-double digits in global energy markets. Core sales are expected to be down 3% to flat as against the prior expectation of down 2% to up 1%. Adjusted earnings are predicted within $1.50−$1.58 per share, down from $1.53−$1.63 projected earlier.

Bleak prospects have weakened investors' confidence in Rexnord Corporation. The company's share price has fallen 34.2% year to date, while declining 13.2% since Aug 5.

Over the last 60 days, the Zacks Consensus Estimate for Rexnord has decreased 2% to $1.49 per share for fiscal 2016 and 4.7% to $1.61 for fiscal 2017. Moreover, the company has Earnings ESP of -6.25% for the second quarter, -7.38% for fiscal 2016 and -17.39% for fiscal 2017.

Stocks to Consider

Rexnord Corporation currently has a market capitalization of $1.9 billion. Better-ranked stocks in the machinery industry include Sandvik AB SDVKY, Energous Corporation WATT and Powell Industries, Inc. POWL. All three stocks carry a Zacks Rank #2 (Buy).

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