Better End-Market Exposures Helping Rexnord Into 2020

I liked Rexnord (RXN) a year ago, or at least I thought the company’s valuation was curiously low on a relative basis given the company’s end-market exposures and cost-reduction efforts. Since then, Rexnord has indeed leveraged that better end-market exposure, driven more costs out of the business, and adapted quite well to tariffs. The market has noticed as well, with Rexnord’s roughly 20% move up since that last article doubling the return of its industrial peer group.

Rexnord’s relative valuation isn’t quite so appealing now, but I do still see high single-digit to low double-digit return potential that is a little better than the average industrial. Although Rexnord’s leverage/exposure to industrial production and capex is a risk, I like the company’s exposure to opportunities like non-residential construction, aerospace, and food/beverage, and I think there’s relatively little destocking risk at this point. All in all, I’d say Rexnord is straddling that buy/hold line, and I think it still offers relatively better upside than many of its peers.

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Better End-Market Exposures Helping Rexnord Into 2020