Rexnord's Growth Potential Dimmed by Macro & Micro Woes

Headlines that say Stocks, Finance, Markets, Business and World. Credit: Shutterstock photo

We issued an updated research report on machinery company Rexnord CorporationRXN on Feb 8. The company, with a $2.3 billion market capitalization, specializes in manufacturing and selling process and motion control, and water management products.

Since the release of third-quarter fiscal 2017 (ended Dec 31, 2016) results on Feb 1, shares of Rexnord yielded 2.96% return, outperforming the gain of 0.11% recorded by the Zacks categorized Machinery Electrical industry.

Rexnord's financial performance has been impressive in the last four quarters, recording better-than-expected results in three and in-line results in one. Average earnings surprise was a positive 5.91%. In the last quarter, the company's earnings of 25 cents per share exceeded the Zacks Consensus Estimate of 24 cents by 4.17%.

In addition, we believe that Rexnord has the potential to expand its businesses by leveraging the accelerated demand from non-residential construction markets in the U.S. as well as from the global food and beverage end markets. Also, the company's diversified businesses in mining, food & beverage, aerospace, non-residential construction and global water infrastructure end markets are an added boon.

By fiscal 2017, Rexnord anticipates approximately $30 million of annual cost-savings from its supply-chain optimization and footprint-repositioning program launched in first-half fiscal 2016. Moreover, in the long term, the company targets mid-single digit core growth, 30% incremental profit margin and free cash flow in excess of net income.

Despite such positives, Rexnord's growth momentum is restricted due to presence of near-term headwinds including industry rivalry, uncertain economic conditions and unfavorable foreign currency movements. In the near term, the company anticipates decline in the U.S. & Canada Industrial Distribution end market, global process industries and water & wastewater infrastructure end market in Middle East.

For fiscal 2017, Rexnord has lowered its adjusted earnings guidance to $1.27-$1.33 per share due to the adverse impacts of capital market transactions. Core sales are predicted to decline roughly 3%.

Rexnord currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the machinery industry include ABB Ltd. ABB , II-VI Incorporated IIVI and Pioneer Power Solutions, Inc. PPSI . While both ABB Ltd. and II-VI Incorporated sport a Zacks Rank #1 (Strong Buy), Pioneer Power Solutions, Inc. carries a Zacks Rank #2 (Buy). You can see t he complete list of today's Zacks #1 Rank stocks here.

ABB Ltd.'s earnings estimates for 2017 have been revised upward over the last 60 days. Average earnings surprise for the last four quarters is a positive 23.50%.

II-VI Incorporated reported better-than-expected results in the last four quarters, with a positive average earnings surprise of 59.23%. Also, bottom-line expectations for fiscal 2017 and fiscal 2018 have improved over the past 60 days.

Pioneer Power Solutions, Inc.'s earnings estimates for 2017 improved over the last 60 days.

Just Released - Driverless Cars: Your Roadmap to Mega-Profits Today

In this latest Special Report, Zacks' Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making - autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

ABB Ltd (ABB): Free Stock Analysis Report

II-VI Incorporated (IIVI): Free Stock Analysis Report

Pioneer Power Solutions, Inc. (PPSI): Free Stock Analysis Report

Rexnord Corporation (RXN): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Sign up for Smart Investing to get the latest news, strategies and tips to help you invest smarter.