BofA Downgrades Colfax On Macro Volatility, Howden Challenges

Environmental movements and the global trade climate aren’t on the side of Colfax Corp CFX. The stock dropped 25 percent over the last year and analysts have jumped ship.

The Rating

Bank of America Merrill Lynch analyst Andrew Obin downgraded Colfax from Buy to Underperform and cut the price target from $46 to $32.

The Thesis

Colfax is the stock in BofA's portfolio most vulnerable to macro volatility and a strengthening U.S. dollar, particularly as it has the least North American exposure, Obin said in a Monday note. 

With anticipated structural challenges to the Howden business — including competition, a lack of pricing power and high exposure to a waning coal power end market — the analyst said he expects below-average core growth with margins below the 15-percent target.

BofA cut its earnings per share estimates on the basis of projected FX headwinds and more conservative growth projections for Howden's segments. 

“Our Buy thesis was based on the expectation of EPS upside from cyclical tailwinds, especially from robust emerging markets (about 50 percent of sales), which did not fully materialize,” Obin said. 

The analyst forecast about $1 billion in “fixer-upper” — not transformative — acquisitions through 2019.

“M&A is at the core of CFX’s growth strategy but CFX’s discounted valuation limits its acquisition flexibility in the current environment of elevated acquisition multiples in the industrial space." 

Price Action

Colfax shares were down 5.9 percent at the time of publication Monday morning. 

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