Monday, June 25, 2018

Colfax Continues To Underwhelm

I should have known better than to buy into some of the guidance and happy talk coming from Colfax (CFX) management last year, particularly when the shares had already had a big recovery run. For as much as Colfax’s fans like to talk about culture and management’s ties to Danaher’s (DHR) Danaher Business System, the reality is that this is NOT Danaher and the results that this company has generated over the years aren’t even close to Danaher levels – not only in terms of M&A execution, but in terms of continuous business improvement and ongoing innovation.

Colfax shares are down about 30% since my last article on the company, dramatically underperforming the otherwise lackluster share price performance of Lincoln Electric (LECO) and Illinois Tool Works (ITW), while Danaher and Fortive (FTV) (the true option for investors who want to invest in a company run along Danaher’s philosophical lines) have both done considerably better.

Colfax shares look undervalued, but it takes more than cheapness to drive performance, and I do not trust this management team to create meaningful value over the cycle. The company is well behind Lincoln Electric and Illinois Tool Works in welding innovation, and management’s desire to add a new business vertical brings fair questions about whether they can identify a suitable target and execute a successful deal. I may well end up being just as wrong for disliking Colfax down here as I was for being somewhat bullish back in 2017, but if I’m going to stick my neck out for a company, I want it to be one with a history of executing and delivering on its targets.

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