Colfax (CFX) Down 55.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Colfax (CFX). Shares have lost about 55.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Colfax due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Colfax Q4 Earnings & Revenues Beat Estimates, Up Y/Y

Colfax reported better-than-expected results for the fourth quarter of 2019, with earnings surpassing estimates by 8.9%. This was the company’s 17th consecutive quarter of impressive results.

The machinery company’s adjusted earnings in the reported quarter were 61 cents per share, surpassing the Zacks Consensus Estimate of 56 cents. Moreover, the bottom line gained 45.2% from the year-ago figure of 42 cents.

For 2019, the company's adjusted earnings were $2.01 per share, surpassing the Zacks Consensus Estimate of $1.98. Also, the bottom line increased 50% from the previous year’s figure of $1.34 per share.

Segmental Revenues

In the quarter under review, Colfax’s revenues were $888.4 million, reflecting marginal growth of 0.3% from the year-ago quarter. The metric gained from 1.7% contributions from the existing businesses and 0.1% from acquisitions, partially offset by a 1.5% adverse impact of forex woes.

Also, the company’s revenues surpassed the Zacks Consensus Estimate of $882.2 million by 0.7%.

The company currently reports under two business segments — Fabrication Technology and Medical Technology. The segmental information is briefly discussed below:

Revenues from Fabrication Technology totaled $554.7 million, declining 3.5% year over year. Fall in the existing businesses had an adverse impact of 1.5%, while forex woes negatively influenced by 2%.

Revenues from Medical Technology totaled $333.7 million, reflecting year-over-year growth of 7.5%. The existing businesses contributed 7.8% and acquisition positively impacted by 0.4%. However, forex woes had an adverse impact of 0.7%. The segment benefitted from strength in reconstructive products, and improvement in prevention & rehabilitation products.

For 2019, the company’s revenues were $3.33 billion, reflecting growth of 51.7% from the previous year. However, the metric lagged the Zacks Consensus Estimate of $3.36 billion.

Margin Profile

In the quarter under review, Colfax’s cost of sales grew 25.2% year over year to $492.5 million. Selling, general and administrative expenses grew 96.6% year over year to $285.9 million. It represented 32.2% of revenues.

Adjusted earnings before interest, tax and amortization (EBITA) in the quarter under review rose 144.6% year over year to $133.8 million. Also, adjusted EBITA margin grew 560 bps to 15.1%. Interest expenses in the quarter grew 109.1% year over year to $32.7 million.

Balance Sheet and Cash Flow

Exiting the fourth quarter, Colfax had cash and cash equivalents of $109.6 million, down 13.7% from $127.1 million at the end of the last reported quarter. Long-term debt balance declined 42.9% sequentially to $2,284.2 million.

Notably, the company made payments of $1.4 billion under term credit facility, and paid out bank borrowing of $2.3 billion under revolving credit facilities and other in 2019.

In the same year, Colfax generated net cash of $130.9 million from operating activities, down 42.2% from $226.4 million generated in the previous year. Capital used for purchasing property, plant and equipment was $125.4 million, reflecting a year-over-year rise of 80.1%.

Outlook

For 2020, the company maintained its guidance for adjusted earnings from continuing operations at $2.10-2.20 per share.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -16.3% due to these changes.

VGM Scores

At this time, Colfax has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Colfax has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.