Rexnord Poised To Continue Momentum Into 2019, Says Oppenheimer Analyst

Rexnord Corp RXN, a manufacturer of motion control and water management products, is attractive due to its growth acceleraton and margin progression prospects, according to Oppenheimer. 

The Analyst

Oppenheimer analyst Jim Giannakouros upgraded shares of Rexnord from Perform to Outperform with a 12-18-month price target of $33.

The Thesis

The upgrade of is based on upbeat fiscal 2018 third-quarter results reported by the company Jan. 31, guidance and the recent pullback in shares, Giannakouros said in a Thursday note. (See the analyst's track record here.)

The analyst said he has come to better appreciate the company's organic initiatives, as he expects better traction on an improving end-market backdrop.

Rexnord "appears set to continue its momentum into [fiscal 2019] — and longer term — as its first-fit strategy and NPI/commercial excellence focus has produced nice wins as digital productivity and conencted solutions enhance reliability of products and facility up-time," Giannakouros said.

Rexnord's water management business is doing well, the analyst said. Process and motion control growth — both organic and inorganic — and value creation are behind Oppenheimer's bullish thesis, he said. 

Oppenheimer expects $200-million-plus free cash flow beyond 2018, which could support valuation and the flexibility for future M&A, Giannakouros said. 

The firm projects that Rexnord will narrow its valuation gap with peers and continues operational improvements on legacy and future acquisitions, the analyst said. 

The Price Action

Notwithstanding a pullback since the start of February, Rexnord shares were up about 23 percent over the past year.

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