Industrial manufacturing and engineering company Colfax Corp CFX remains well-positioned for continued EPS and cash flow growth and intermediate share price outperformance, according to Oppenheimer.
Analyst Bryan Blair upgraded Colfax from Perform to Outperform with a $42 price target.
Colfax's ESAB business, which produces equipment and filler metals for welding and cutting, is set for mid-single-digit core growth, with M&A likely taking the growth to the high-single-digit or low-double-digit range, Blair said in the Monday initiation note. (See the analyst's track record here.)
Continued core growth and continuous improvement could take segment margins toward the mid-teens level, the analyst said.
Blair said he expects strong year-over-year order growth at Howden, which provides precision air and gas handling equipment. Beginning in Q4, the segment is likely to report positive growth, the analyst said. The segment could see materially strong profitability in 2019, thanks to stronger factory utilization and incremental restructuring savings, he said.
While noting that the company has ample flexibility to pursue bolt-on and platform deals, Oppenheimer expects management to pursue "a very active pipeline including varying deal sizes, technologies and end markets."
Oppenheimer maintained a 2018 EPS estimate for Colfax of $2.25 and raised its 2019 EPS estimate from $2.50 to $2.55, due to modestly stronger AGH growth and segment margin expansion.
"With near-term expectations reasonable (conservative, in our view), significant upside profit drivers on the horizon (organic and inorganic) and valuation attractive (on '19E, FCF yield of 7 percent), we move off the sidelines on CFX," Blair said.
The Price Action
Colfax shares have lost about 12 percent year-to-date.
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