Rexnord's End Markets Show Strength, Competition An Issue

We issued an updated research report on machinery company Rexnord Corporation (NYSE:RXN) on Jun 23. Though the company displays solid long-term growth prospects, its exposure to headwinds makes us cautious about its near-term performance.

In the last four quarters, the company reported better-than-expected results in three while posting in-line results in one. Average earnings surprise was a positive 6.73%. In the years ahead, the company anticipates expanding business by leveraging the accelerated demand from non-residential construction markets in the U.S. and from the global food and beverage end markets.

Also, Rexnord sees inorganic initiatives as a means of growing profitability. For instance, the company exited its non-strategic RHF product line for the best interests of its shareholders and acquired Cambridge International Holdings Corporation in fiscal 2017. Additionally, the company seems to be on track to complete its supply-chain optimization and footprint-repositioning programs in first-quarter fiscal 2018, realizing annualized cost-savings of $30 million.

In the long term, Rexnord aims at mid-single digit core growth, 30% incremental profit margin and free cash flow in excess of net income. Adjusted EBITDA incremental margin is expected in a range of 30−35% and 20−25% for the Process & Motion Control and Water Management segments, respectively.

However, we believe that Rexnord faces stiff competition from other players within the industry. Prime competitors include Regal Beloit Corporation (NYSE:RBC) , Capstone Turbine Corporation (NASDAQ:CPST) and ESCO Technologies Inc. (NYSE:ESE) . Also, any adverse happening in the home country or global market as well as unfavorable movements in foreign currencies could produce an adverse material impact on the company’s business.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 "Strong Buys" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 "Strong Sells." Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>

ESCO Technologies Inc. (ESE): Free Stock Analysis Report

Capstone Turbine Corporation (CPST): Free Stock Analysis Report

Rexnord Corporation (RXN): Free Stock Analysis Report

Regal Beloit Corporation (RBC): Free Stock Analysis Report

Original post