Here's Why You Should Avoid Betting On Regal Beloit Stock Now

Regal Beloit Corporation Price and Consensus | Regal Beloit Corporation Quote

Higher Costs and Expenses: Regal Beloit’s cost of sales increased 8.4% year over year in the third quarter of 2018 and operating expenses grew 30.6% year over year. Increase in raw material costs — mainly due to the implementation of Section 232 tariff on steel and aluminum — as well as other inflationary pressures — are playing a spoilsport. Further escalation in costs and operating expenses, if not controlled, can severely impact margins and profitability.

It’s worth noting here that Regal Beloit has been suffering from higher costs and expenses for quite some time now. In the last five years (2013-2017), the company’s cost of sales increased 1.4% (CAGR) and operating expenses grew 2.3% (CAGR).

Long-Term Debt: Regal Beloit’s long-term debt in the last five years (2013-2017) increased 11.3% (CAGR). The debt balance at the end of the third quarter of 2018 was $1,278.3 million, up 22.9% from the balance recorded at the end of 2017. Further, the company’s total debt/total equity stood at 54.2% exiting the third quarter, higher than 48.5% recorded at the end of 2017.

If unchecked, high-debt levels can prove detrimental to the company’s margins and profitability in the quarters ahead.

Other Headwinds: Regal Beloit is exposed to customer concentration risks as it sources large part of its revenues from a few customers. Cancellation in orders from any of these customers might adversely impact the top-line performance. Moreover, the company’s acquisitive nature exposed it to integrations risks.

Stocks to Consider

Some better-ranked stocks in the Zacks Industrial Products sector are DXP Enterprises, Inc. (NASDAQ:DXPE) , Barnes Group, Inc. (NYSE:B) and Colfax Corporation (NYSE:CFX) . While DXP Enterprises currently sports a Zacks Rank #1 (Strong Buy), both Barnes and Colfax carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Earnings estimates for these three companies for 2019 have improved over the past 60 days. Further, positive earnings surprise for the last four quarters was 112.62% for DXP Enterprises, 7.04% for Barnes and 8.88% for Colfax.

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