We have issued an updated research report on Barnes Group Inc. B on Jul 20.
The company specializes in manufacturing highly engineered products, innovative solutions and differentiated industrial technologies — including robotic grippers, plastic injection molding technologies and others.
Presently, Barnes, with a market capitalization of $2 billion, carries a Zacks Rank #4 (Sell). A number of factors that are currently impacting the company’s near-term prospects is discussed below:
Factors Working Against Barnes
Price Performance & Earnings Estimates: For quite some time now, Barnes’ shares have been underperforming the industry. In the past three months, the stock gained 6.2% compared with the industry’s growth of 25.1%. Also, during the same timeframe, the Zacks Industrial Products sector and the S&P 500 grew 27.6% and 18.1%, respectively.
Price Performance Chart
In addition to the price underperformance, the lowered earnings estimates for Barnes are also reflective of bearish sentiments for the stock. In the past 60 days, the Zacks Consensus Estimate has been pegged at $1.82 for 2020 and $2.25 for 2021, reflecting declines of 5.7% and 3% from the respective 60-day-ago figures.
Also, estimates for the second and third quarters of 2020 are pegged at 20 cents and 37 cents, showing declines of 9.1% and 2.6% from the respective 60-day-ago figures.
Barnes Group, Inc. Price and Consensus
Barnes Group, Inc. price-consensus-chart | Barnes Group, Inc. Quote
Top-Line Woes: Barnes is wary about the adverse impacts of the pandemic on its operations. It believes that operational setbacks as a result of the pandemic will adversely impact its Industrial segment. Further, the OEM business of the Aerospace segment is likely to suffer from lower demand and issues with 737 MAX.
For second-quarter 2020, the company expects organic sales decline of 30% year over year. However, projections for 2020 have been suspended due to uncertainties related to the pandemic.
Restructuring Charges: It expects to record restructuring charges (related to severance costs) of $18 million in second-quarter 2020. The charges are expected to have a minor impact on second-quarter cash and an impact of $10 million in the second half of 2020. Also, this might have an impact in the next year as well.
Woes Related to International Presence: Barnes carries out operations in Asia, Europe, the Americas and others. The international presence has exposed the company to risks arising from unfavorable movements in foreign currencies, macroeconomic challenges, geopolitical issues and local competitive pressure. In first-quarter 2020, forex woes adversely impacted its sales by 1%.
Factors Favoring Barnes Group
Shareholder-Friendly Policies: Barnes is committed toward rewarding shareholders handsomely. It distributed dividends of $8.1 million in the first quarter of 2020, while bought back $15.6 million worth of shares.
It is worth mentioning here that the company announced to have received the board of directors’ approval for the buyback of 5 million common shares. Exiting the first quarter of 2020, it was left with authorization to repurchase 3.7 million.
Leverage: The company’s long-term debts declined 11.9% from the 2018-level, while the same metric at $783.4 million reflected a sequential fall of 5% in first-quarter 2020. Its total debt to total capital was at 38.7%, lower than the previous quarter’s 39.4% and the industry’s 53%.
In addition to declining debts, the company’s abilities to repay its financial obligation are worth mentioning. Its times interest earned stood at 11.4X, higher than the previous quarter’s 11.0X and the industry’s 9.8X.
Stocks to Consider
Three better-ranked stocks in the industry are Dover Corporation DOV, Altra Industrial Motion Corp. AIMC and IDEX Corporation IEX. All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, positive earnings surprise for the last reported quarter was 17.80% for Dover, 47.73% for Altra Industrial and 3.10% for IDEX.
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