IDEX Priced As The High-Quality Growth Fluid Control Story That It Is

Quality fluid control/fluid management stocks don’t often trade all that cheaply, and that’s just a fact of life in the market today. You can look at a diverse group of peers and comps for IDEX (IEX) and, for the most part, if you see an undervalued name, it’s likely because the company has outsized exposure to oil/gas and/or power gen and not as much exposure to short-cycle industrials and biopharma. So, as a high-quality name in a still-popular space, I’m not that surprised that IDEX has continued to outperform the broader industrial group since my last update, particularly as the company has taken some aggressive cost reduction moves to mitigate decremental margin pressure.

I’m comfortable with a double-digit FCF growth outlook for IDEX, with growth opportunities in life sciences and photonics offsetting some longer-term pressure in oil/gas. Short-cycle leverage here is more mixed; autos, ag, and “general industrial” should be getting better, but aerospace, oil/gas, power, and chemicals could drag on results a little longer.

Are IDEX shares cheap? Nope. Would I expect them to be? Not really, particularly with management doing a pretty good job of mitigating COVID-19-related pressures. I do still think that valuation always matters sooner or later, and I’d rather wait for a pullback than chase a name offering what appears to be mid single-digit long-term total annualized appreciation potential.

 

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IDEX Priced As The High-Quality Growth Fluid Control Story That It Is