Author Topic: CFX - Colfax Corporation  (Read 38346 times)

netnet

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Re: CFX - Colfax Corporation
« Reply #70 on: January 25, 2016, 12:53:31 PM »
Last week's Barrons (Jan 16)

Deflated Pump Maker Colfax Will Revive
Despite likely weakness in the company’s business in 2016, the shares look tempting long-term.
By David Englander
January 16, 2016

Colfax’s products include pumps for offshore drilling rigs Photo: Jan Stromme/Getty Images

The energy collapse has taken down the shares of industrial companies of all stripes that rely on the sector. Among those that have come under the heaviest pressure is pump and welding-products maker Colfax. Its stock has cratered 75% since June 2014, when oil was above $100 a barrel.

At a recent $20 the stock (ticker: CFX) has been all but left for dead. With oil hitting a new low last week, this column is willing to tiptoe into the shares. Assuming oil prices don’t stay at $30 forever, the stock looks like a bargain.

Colfax sells its heavy-duty pumps to pipeline firms and to oil producers for use on drilling rigs. Its other major business, selling welding products, also caters to oil and gas customers. As they have pared their expenditures, demand has come down sharply.

Colfax has been restructuring its businesses, taking costs out to navigate the downturn. Even with oil prices dragging at their lows, earnings aren’t expected to fall much further. The balance sheet is solid, and free-cash-flow conversion exceeds 125% of net income.

Cowen analyst Joseph Giordano looks for earnings of $1.41 a share this year, down 8% from his 2015 estimate, on 5% lower revenue. But when acquisition-related amortization is added back, he estimates cash earnings at $1.60. Colfax will report 2015 results in February.

AT JUST OVER 12 TIMES cash earnings, the stock is cheap for a high-quality industrial. That valuation could help put a floor under it. The estimated free-cash-flow yield is also attractive at 9%. Giordano values the shares at $40, based on his discounted cash flow analysis. Investors shouldn’t expect that price right away, but in the next year or two, the stock could move a lot higher.

Founded in 1995 by Steven and Mitchell Rales, the brothers who started Danaher (DHR), Colfax has grown through acquisitions into a company with roughly $4 billion in revenue. In the past five years alone, revenue is up over 400%. Mitchell Rales, the chairman, owns 9% of the stock.

Like Danaher, Colfax has developed its own system for integrating acquisitions and improving profitability, called the Colfax Business System. Colfax’s brands are top-notch, and many hold leading market positions.

Colfax’s revenue is split evenly between gas- and fluid- handling products and welding gear. It makes engine pumps for big tanker ships, pumps that move oil and gas through pipelines, and industrial fans that ventilate mines. Its welding products include arc-welding equipment and cutting machines.

Colfax’s other markets are power generation, commercial marine vessels, metal fabrication, and mining. Emerging markets account for nearly half of sales. While those markets have been under strain lately, they have the potential to drive strong growth over the next five to 10 years.

In the near term, the outlook for Colfax’s markets isn’t great. On the October earnings call, CEO Matt Trerotola said he believes that “these downturns are cyclical, not structural,” but cautioned that a recovery might not occur until 2017. Trerotola joined Colfax in July from a senior role at DuPont.

In the September quarter, Colfax’s sales fell 17% from the year-earlier level; that includes a 12% drop related to the impact of unfavorable foreign-currency exchange. In oil and gas, sales actually rose 2%, but orders dropped 14%, which doesn’t bode well for 2016. The commercial marine and mining sectors are also expected to be weak this year.

POWER GENERATION, benefiting from new plants in China and a steady aftermarket business, may be the sole bright spot for Colfax in 2016. Company guidance calls for a total sales decline of about 5%, on an organic basis.

In 2012, Colfax bought the much larger Charter International, Europe’s biggest welding-equipment maker, for $2.4 billion. ESAB, as the business is known, has been a poor performer. Weakness in welding-intensive businesses, such as oil and gas drilling and shipbuilding, has hurt. Operational troubles also have weighed on margins. Management is working to turn the unit around, both operationally and through new products. Last year, margins were about 10%, compared with a goal in the midteens. That represents a real opportunity for improvement.

Colfax’s restructuring could reduce its cost structure by $100 million annually from the level at which the company began in 2015.

Colfax has been a serial acquirer, but given the weakness in its markets, it’s possible that it will hold off on making a big acquisition for a while, and instead focus on improving operations. In October, management initiated a $100 million stock-buyback program, suggesting that it considers its own stock a good investment.

Clearly, Colfax management believes that its businesses are solid and its markets will recover. In time, too, so should its stock.


CorpRaider

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Re: CFX - Colfax Corporation
« Reply #71 on: January 25, 2016, 06:45:58 PM »
I like it....at $16-ish.

bonkers

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Re: CFX - Colfax Corporation
« Reply #72 on: January 26, 2016, 01:25:51 AM »
The problem with Colfax is not only with the industry exposure (Oil&Gas, mining, coal power among others), but also high share of emerging markets (50 % of sales). "The right markets" as they used to say. "Where the growth is" as they used to say.

Well, certainly EM currencies will not depreciate to zero, but I cannot say how low they can go. So where is any kind of solid ground for sales (and profits)?

sae85400

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Re: CFX - Colfax Corporation
« Reply #73 on: June 06, 2016, 12:40:11 PM »
New CFO announced recently 

chrispy

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Re: CFX - Colfax Corporation
« Reply #74 on: August 28, 2018, 03:08:29 AM »
In an interview from 2014 Chuck Akre mentions how CFX was their biggest position:

https://youtu.be/eEO5G1SjCeU

I was quite amazed to see how the stock had performed since then... Does anyone know when he sold out? I've been reviewing his compounding machine approach and portfolio and this seems to be the biggest failure.

In hindsight, what were the red flags on Colfax? It's concentration on oil and gas, shipping, and emerging markets after a small EM bull market following the GFC?

Spekulatius

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Re: CFX - Colfax Corporation
« Reply #75 on: August 28, 2018, 04:12:08 AM »
In an interview from 2014 Chuck Akre mentions how CFX was their biggest position:

https://youtu.be/eEO5G1SjCeU

I was quite amazed to see how the stock had performed since then... Does anyone know when he sold out? I've been reviewing his compounding machine approach and portfolio and this seems to be the biggest failure.

In hindsight, what were the red flags on Colfax? It's concentration on oil and gas, shipping, and emerging markets after a small EM bull market following the GFC?

What went wrong:

1) CFX dependent on volatile end markets for growth. Those markets (Foremost O&G turned down and the direct and indirect impacted CFX)
2) CFX is a rollup. Once the stock price turns down, acquisition aren’t accreditive any more and hence stop. Same problem that KHC is facing.
To be a realist, one has to believe in miracles.

longinvestor

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Re: CFX - Colfax Corporation
« Reply #76 on: August 28, 2018, 07:50:54 AM »
In an interview from 2014 Chuck Akre mentions how CFX was their biggest position:

https://youtu.be/eEO5G1SjCeU

I was quite amazed to see how the stock had performed since then... Does anyone know when he sold out? I've been reviewing his compounding machine approach and portfolio and this seems to be the biggest failure.

In hindsight, what were the red flags on Colfax? It's concentration on oil and gas, shipping, and emerging markets after a small EM bull market following the GFC?

What went wrong:

1) CFX dependent on volatile end markets for growth. Those markets (Foremost O&G turned down and the direct and indirect impacted CFX)
2) CFX is a rollup. Once the stock price turns down, acquisition aren’t accreditive any more and hence stop. Same problem that KHC is facing.

Indeed. Especially #2. Colfax's portfolio doomed it from the early stages. Knowing that the parentage of Colfax is the same as Danaher's, a big lesson here is knowing what should not be acquired at all. Price paid is secondary. I suppose permanent ownership of cigar butts.

As an example, it is likely no coincidence that Danaher has stayed away from unfixable businesses. For instance, anything auto industry related. If you follow Danaher from the 1990's they curated the portfolio by shedding old line industrials, tools for example.