UPDATE: Credit Suisse Upgrades Rexnord, Cites Considerable Upside to Consensus EPS Forecasts

In a report published Monday, Credit Suisse analyst Julian Mitchell upgraded

from Neutral to Outperform, raising its price target from $22.00 to $31.00. According to the report, since RXN's IPO, it has held a Neutral rating as analysts remained cautious on its organic growth prospects and the ability to execute on M&A. However, with bottoming end-markets and the strategic ‘noise' behind it, we see considerable upside to consensus EPS forecasts. “RXN's M&A pace has quickened considerably in the past few months, most recently with Precision Gear Holdings,” the report said. “We think this accelerated pace will continue through 2015, given the now-stable strategic footing. RXN focuses on doing fairly small deals in niche markets, allowing it to pay mid-high single-digit EV/EBITDA multiples, which are considerably lower than the industrials' M&A average.” The report further asserted its better organic growth outlook. Soon after its IPO, RSN's industrial/mining markets started to turn down, limiting its capital deployment flexibility. It is now seen that the outlook for its Water business in particular is improving, given the analysts more positive view on US non-residential construction. “The improving organic growth outlook, and the recent debt re-financing (lowering interest payments) means that net debt / EBITDA can fall slightly (by a turn or so) over the next 12 months (from 4-4.5X), even as M&A picks up,” the report said. RXN closed Friday at $27.45.