Second quarter earnings were better than expected across the industrial space, but the reality remains that business conditions remain challenging. August industrial production was up from July and better than expected, but still down 0.4% year over year and signs of the hoped-for V-shaped recoveries are still intermittent at best. Likewise, non-residential construction isn’t looking particularly strong in 2021, as there’s a general reluctance to commit to new investments given the high economic uncertainty.
None of that is particularly good for Rexnord (RXN), and the shares have lagged the industrial sector since my last update on the company in May. I thought the shares were a borderline buy/hold call then, but relative valuation is starting to get more interesting and I like the company’s willingness to return to M&A to grow the business. I’ve thought before that Rexnord gets overlooked a bit by investors, particularly in light of good margin improvement in recent years and solid growth prospects, and this is an increasingly interesting name to me in the industrial space.
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Rexnord's Modest Relative Underperformance Looking More And More Like An Opportunity
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