It has been a while since I've written on Rexnord (NYSE:RXN),
largely because I thought the valuation wasn't all that interesting
back in mid-2013. The shares are up about 10% since then, which is well
below the return of the S&P 500, but in line with rival Regal Beloit (NYSE:RBC) and better than ABB (NYSE:ABB).
Since the time of that last article, Rexnord has borne the brunt of a
rough stretch in its industrial and resource-centric end-markets, and
the company's margins have gotten worse, bringing the company down to
mid-pack (or a little worse) in the industrial conglomerate space.
These
shares have had a run since the election, but there may still be enough
value here to merit a closer look. I really like the company's leverage
to healthier end-markets like aerospace and food/beverage, as well as
the prospects for improvement in industrial markets, eventual
improvement in resource industries, and possibly a renewed focus on
water infrastructure spending in North America. I believe management
still has to earn the benefit of the doubt with respect to margin
improvements, but mid single-digit FCF growth can support a fair value
above $21 and a double-digit total expected return.
Continue here:
Rexnord Still A Work In Process
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