We recently downgraded our recommendation on
) from Outperform to Neutral, expecting the company to perform in
line with the broader market in the next 6-12 months.
Why the Downgrade?
We find Rexnord well positioned to grow its Process & Motion
Control and Water Management platforms on the back of increasing
backlog in the non-residential construction market in the U.S.
and Canada, growing demand for clean water and rising demand in
the aerospace industry.
Rexnord has provided a year-to-date return of 29.0%. The earnings
growth rate for the next five years is estimated at 23.4%,
considerably higher than 14.7% predicted for the industry.
Also, acquisitions are expected to play a major role in expanding
Rexnord's businesses. In this regard, the recent acquisition of
Precision Gear Holdings is worth mentioning. The acquired assets
will help widen the company's product offerings within its
Process and Motion Control platform.
Also, Rexnord's presence in diversified end markets, including
mining, food and beverage, aerospace, non-residential
construction and global water infrastructure, acts as a boon. For
fiscal 2014, management anticipates core sales growth to be
within 3%-4% and earnings per share in a band of $1.32-$1.38.
Moreover, refinancing of term debts will have a positive impact
on the company's free cash flow and earnings.
Anticipating that the impacts of these positives have already
been accounted for in the company's share price, we have
downgraded our recommendation to Neutral on Rexnord. Also, risks
from customer concentration, adverse market conditions and stiff
competition raise our concern.
Other Stocks to Consider
Rexnord Corporation currently has a $2.7 billion market
capitalization and carries a Zacks Rank #3 (Hold). Some
better-ranked stocks in the industry include
Pioneer Power Solutions, Inc.
Raven Industries Inc.
). While both EnerSys and Pioneer hold a Zacks Rank #1 (Strong
Buy), Raven Industries carries a Zacks Rank #2 (Buy).
ENERSYS INC (ENS): Free Stock Analysis Report
PIONEER PWR SOL (PPSI): Get Free Report
RAVEN INDS INC (RAVN): Free Stock Analysis
REXNORD CORP (RXN): Free Stock Analysis
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