The Early Returns From GEA Group's Turnaround Have Been Very Encouraging

I know it's a corporate-speak cliché, but there really is something to notions like "under-promise and over-deliver" and "plan the work, work the plan", and I think you see some of the benefits already at GEA Group (OTCPK:GEAGY) (G1AG.XE). Although I saw relatively modest near-term upside before if management "only" hit the initial targets, execution on the turnaround plan has been better than expected, and the more ambitious targets that I mentioned in that piece are now relevant to the conversation.

There's still a lot of work to be done. While management has already largely decentralized the operations, the divestitures haven't really even started, and certain projects, like the turnaround of the Liquid & Powder Technology segment, are going to take years as new management works through bad projects on the books. Still, there is a credible plan here, and I like management's decision to focus on food, beverages, and pharmaceuticals as future growth drivers (not unlike SPX FLOW (FLOW)). With low single-digit revenue growth, mid-single-digit FCF growth, and high single-digit adjusted operating margins supporting a fair value more than 20% above today's price, I still think this is a name worth considering.

 

Read the full article here: 

The Early Returns From GEA Group's Turnaround Have Been Very Encouraging

GEA Group - A Credible Self-Improvement Plan, But No Better Than Expected

“So lie to me, but do it with sincerity” Depeche Mode, Lie To Me

Guidance is a funny thing. Nobody wants to be lied to (or at least nobody will say they want to be lied to), but given the short attention spans and short-term focus of most institutional investors, investors often seem to prefer unrealistically high targets from management teams that boost the shares in the short term, with long-term consequences be damned. To that end, GEA Group’s (OTCPK:GEAGY) (G1AG.XE) restructuring plans announced in late September had credible, sober, attainable near-to-medium-term goals, but they didn’t exceed the already-inflated expectations from the sell-side and the lingering sentiment seems to be one of disappointment.

Valuation is tricky here, and I will remind investors that successful turnarounds often exceed initial expectations, but not all turnarounds succeed. If GEA Group does only what is already in the stated plan, the company will still be relatively lackluster compared to its peer group, and the shares are only modestly undervalued (though still undervalued). If, however, GEA Group’s new management team is taking sensible bites and setting achievable goals, with greater long-term potential than is reflected in the 2022 guidance, the shares are worth more serious consideration.

Click here for more:
GEA Group - A Credible Self-Improvement Plan, But No Better Than Expected

Low Expectations And Portfolio Transformation At SPX Flow

When I last wrote about SPX Flow (FLOW), I wasn’t too enamored with the stock, as the company’s orders seemed underwhelming relative to the cycle and I didn’t like the near-term prospects for growth and margin improvement. Since then, the shares are down about 10% (including a strong post-earnings move), lagging the broader industrial sector by close to 20%, not to mention peers/rivals like Alfa Laval (OTCPK:ALFVY) and Flowserve (FLS) – in fact, until this post-earnings spike, the shares had been lagging troubled GEA Group (OTCPK:GEAGY), and that’s really not a good thing.

I don’t believe SPX Flow is a vastly better business today than a year ago, but I have seen progress on margin and portfolio improvement efforts, the most obvious example being the decision to look to divest the lower-margin Power & Energy business, but also including subtler moves like deprioritizing larger dairy orders. What’s more, the expectations embedded in the business seem quite low. I do have some concerns that this could be a value-trap, but the value proposition is interesting.

Continue here:
Low Expectations And Portfolio Transformation At SPX Flow

Alfa Laval Buoyed Again By Strong Marine Results

As has been the case for most multi-industrials, particularly in the capital goods sector, Alfa Laval (OTCPK:ALFVY) (ALFA.ST) has shaken off some of the malaise that had pushed the shares down until relatively recently – while Alfa has outperformed its industrial peers since my last update, the 6-month and 12-month comparisons have Alfa lagging the market as sell-siders and investors have grown worried about what will happen as scrubber orders start to fade.

Although I’m not wild about the valuation (nor the valuation on industrials more broadly), this is still a company that I like quite a bit. I think there’s more opportunity in marine than just scrubbers, and I think longer-term opportunities in food, beverages, life sciences, and HVAC are not always given their due. Give me a 10% to 15% pullback and these shares get much more interesting as a potential longer-term holding.

Continue here:
Alfa Laval Buoyed Again By Strong Marine Results

A Fresh Start For GEA Group, But Old Problems Linger

It is a little hard to believe just how bad things got under the now-former leadership of GEA Group (OTCPK:GEAGY) (G1AG.XE), as the company posted numerous profit warnings and misses over the last three years, the latest of which (just before new CEO Stefan Klebert took over) saw an adjusted EBITDA outlook for 2019 almost 20% below the prior sell-side average.

As it stands today, there's a lot of work that needs doing at GEA Group. From product design and quality control to a thorough portfolio review, to cost/efficiency initiatives to IT harmonization, almost everything at GEA Group needs to be fixed. That's a lot for any management team to take on, and GEA Group's new management doesn't come in with an established record of executing in turnaround situations. Fortunately, expectations are at a point now where I believe even "okay" performance on a turnaround can drive meaningful upside for patient shareholders. While there is certainly a risk that things get worse before they get better, not to mention a risk that they may not get better at all, and that risk makes the shares unsuitable for less aggressive investors, the weak sentiment relative to an established market presence in end-markets with attractive long-term characteristics makes this a name to consider.

Click here for more:
A Fresh Start For GEA Group, But Old Problems Linger

GEA Group Starting To Get Interesting

Down another 10% or so from when I last updated readers on the company, GEA Group (OTCPK:GEAGY) (G1AG.XE) has more or less lived down to my expectations as this company is largely marking time ahead of a management transition. Since that last update, though, the company has reported a decent quarter, has announced the new CEO, and has seen improvements across most of its end markets.

GEA Group still needs a lot of restructuring work, and that work is going to take years to accomplish. Still, I’m starting to think that the investment case is more interesting here. While I do incorporate business improvement expectations into my model (improvements that may not come), I believe that if GEA doesn’t make relatively quick restructuring progress, activist shareholders will push hard for a sale of the company. With a fair value of a little over $40/ADR, this may be a name for investors with the patience to hold a turnaround story to start looking into more closely.

Read more here:
GEA Group Starting To Get Interesting

Alfa Laval Flexing Its Late-Cycle Muscles

I liked Sweden’s Alfa Laval (OTCPK:ALFVY) (ALFA.ST) earlier this year as a late-cycle play on stronger Marine and Energy orders, as well as decent prospects for ongoing growth in the Food/Water business. Much of that has come to pass, and the shares are now about 20% higher than they were at the time of that last article. Alfa Laval has since logged two very strong quarters, and those hoped-for improvements in the company’s three main business lines have materialized with stronger revenue, orders, and margins.

With the strong move in Alfa Laval’s share price, not to mention some growing concerns about how much is left in this current industrial upswing, I believe these shares have moved from good idea to okay idea. The implied long-term return is still in the high-single digits, which isn’t bad, and I won’t be too surprised if the company has at least one more better-than-expected quarter up its sleeve. Still, I wouldn’t push my luck too far, even though I regard this as a well-managed operator in some attractive businesses.

Read more here:
Alfa Laval Flexing Its Late-Cycle Muscles

SPX FLOW More Focused, But Iffy Order Flow Is A Concern

Investors are trying to figure out where industrials are headed, and SPX FLOW's (FLOW) share performance so far this year reflects a lot of that uncertainty. The market liked what management had to say at its early March investor meeting (after which the shares traded into the mid-$50's), but disappointing results and guidance across the sector had investors worried going into earnings, taking the share down into the low $40's, before the results brought some stability to the shares.

It's an interesting coincidence (and perhaps not just coincidence) that SPX FLOW's share price performance puts it almost directly in the middle of Alfa Laval (OTCPK:ALFVY), better-run and with better near-term prospects, and the rolling train wreck that is GEA Group (OTCPK:GEAGY). Although the shares seem to have a little bit of upside here, I'm concerned that the Food & Beverage business could stay weaker for longer and that management may not be able to maximize the opportunities in the power and energy rebound.

Continue here:
SPX FLOW More Focused, But Iffy Order Flow Is A Concern

Change Is Coming At GEA Group, But It May Take Time To Arrive

When I last wrote about GEA Group (OTCPK:GEAGY), I said there were still meaningful risks that the company could disappoint investors even further… and that's exactly what they have done. With yet another weak quarter in the books, and no credible prospects for a near-term reversal in what is now a long trend of disappointment, this is a tough stock to own today.

There are some pieces of good news, though. First, the management that steered GEA Group into this mess is on their way out. Second, the underlying assets and operations still have value and, I believe, can generate attractive returns with the right plan/management in place. Although the shares still look undervalued after once again lowering expectations and could have significant long-term turnaround potential, investors buying/holding today should probably accept that it's going to be a year or longer before there's real change at GEA Group.

Click here for more:
Change Is Coming At GEA Group, But It May Take Time To Arrive

Outside Of Energy, SPX Flow Still Waiting For The Turn

At a time when many industrial companies are seeing strong cyclical recoveries, SPX FLOW (FLOW) is still well off the pace of many of its industrial peers. Although markets like energy, air treatment, and chemical processing still have scope to improve from here, the company's food and beverage segment is likely to be a slower grower and SPX FLOW is going to have to start making more progress on share-of-wallet and internal margin improvement efforts.

Up more than a third from when I last wrote about the stock, I'm not as bullish on SPX FLOW now as I think the catch-up opportunity has largely materialized. There are multiple places where management could execute better over time, but I think those opportunities have to be considered in hand with the likely slower growth that SPX FLOW will see compared to many other industrials. I don't dislike the shares, but I don't see the opportunity I once did.

Continue here:
Outside Of Energy, SPX Flow Still Waiting For The Turn

Alfa-Laval Still Offers Recovery-Driven Upside And The Potential For Improved Execution

For the most part, well-run multi-industrials exposed to recovering markets are not trading at very attractive prices today, and that makes Sweden’s Alfa-Laval (OTCPK:ALFVY) worth a look. It’s certainly too soon to sound an “all clear” on the company’s large marine business, but order growth has been steadily improving and margin leverage is starting to emerge again. With leadership in multiple recovering markets and the potential to significantly improve returns on capital from here, Alfa-Laval is worth a look.

Read more here:
Alfa-Laval Still Offers Recovery-Driven Upside And The Potential For Improved Execution

GEA Group's Struggles Look Like A Potential Window Of Opportunity

GEA Group (OTCPK:GEAGY) underscores one of the challenges in the market today – if you want to pick up shares of an industrial company at a decent (or maybe even “cheap”) valuation, you’re going to pay for it in others ways. In the case of GEA Group, that’s consistency and quality, as the company announced another miss for the fourth quarter and gave disappointing guidance for 2018.

The good news/bad news at GEA Group is that this is a generally good collection of assets that aren’t being run particularly well. With activist investors now involved, I believe there will be more pressure on management to start hitting their efficiency targets and I think the Street would generally welcome a change in management if it comes to that. Priced to generate a high single-digit return from here, I think GEA Group has some appeal, but this stock will require patience and an above-average ability to stomach some near-term volatility and disappointment.

Click here to continue:
GEA Group's Struggles Look Like A Potential Window Of Opportunity

SPX Flow May Still Be Ugly Enough To Love

Life has not been easy for SPX Flow (NASDAQ:FLOW). Based upon what happened to other companies with significant oil/gas exposure like Dover (NYSE:DOV) and Emerson (NYSE:EMR), as well as power generation (also relevant to Emerson), it is no great surprise that a company leveraged to selling pumps and valves to upstream and midstream energy companies would be weak. But then dairy processing weakened significantly and kicked out another leg of SPX Flow's stool. With that, annualized revenue from the last quarter was about 30% below the level of 2012 and the company's efforts to improve its cost structure have largely been buried by operational deleverage.

Not all of SPX Flow's problems have been macro-driven (there have been some self-inflicted wounds along the way), but I do believe that there is a reasonable price for most going concerns and I think SPX Flow may be below that level. Orders have started to improve and I believe margins have bottomed out. Although I'm not looking for a V-shaped recovery in oil/gas, and I believe food/beverage isn't going to grow like it used to, modest revenue growth and margin improvements can drive a fair value close to $40. As a stock that hasn't really rocketed up on its recovery prospects, I think SPX Flow might be worth a closer look.

Read more here:
SPX Flow May Still Be Ugly Enough To Love

Management Unreliability Has Soured The GEA Group Story, But Value Remains

Eighteen months or so ago, I thought GEA Group (OTCPK:GEAGY) (G1AG.DE) looked fully valued despite the long-term attractiveness of a leading company in the food/beverage automation and equipment market. Since then, confidence in management has soured due to an extended period of underperformance and questionable moves like a substantial guidance reduction only a couple of weeks after the 2016 Capital Markets Day. 

GEA Group's dairy processing end-market, which is responsible for around 20% of sales, is likely to struggle for another year or so, but farming, food/beverage, brewing, pharmaceuticals, and industrial markets (including oil/gas) are looking better. What's more, an activist investor is now involved in the shares, which may put a little more pressure on management to up its game. 

I do have some worries about recent cost overruns on new projects and self-inflicted inefficiencies, but I believe the food and beverage markets are attractive long term and I believe GEA Group can get back to double-digit returns on capital. Even with lower assumptions regarding revenue and margins (versus my last article) and a higher discount rate, these shares now look a little undervalued and worth a look from patient investors. 

Investors should note that GEA Group's ADRs don't offer optimal liquidity, so those investors willing and able to trade on foreign exchanges may want to consider buying GEA Group shares on its home exchange.

Read more here:
Management Unreliability Has Soured The GEA Group Story, But Value Remains

Seeking Alpha: GEA Group Looking To Milk Food And Beverage For All They're Worth

Within the industrial and process automation space, there's usually a pretty significant divide between the giants like Siemens (OTCPK:SIEGY), Honeywell (NYSE:HON), Emerson (NYSE:EMR), ABB (NYSE:ABB), and Rockwell (NYSE:ROK) and the much smaller (often private) companies that generate less than $1 billion in revenue and tend to focus on particular end-markets or product categories (like sensors, controls, valves, and so on). That makes Germany's GEA Group (OTCPK:GEAGY) a rare commodity - a publicly-traded company in the automation space that, although not small at over $5 billion in revenue and $9 billion in market cap, is nevertheless highly specialized and a notably different sort of business.

I like GEA Group's focus on the food and beverage industry, as I expect growth in dairy, processed, and packaged food products will outstrip population growth and generate a solid underlying level of demand for the company. I also like the company's efforts to address its cost structure and generate margins in the double-digit range that the large players routinely produce.

What I don't like is the valuation. The perceived advantages of the company's focus on the more stable food/beverage segment are already reflected in the valuation, as well as some buyout potential. With discounted cash flow, ROE/P/BV, and margin/EV/rev all suggesting a fair value in the mid-to-high $40s, this is a name worth monitoring but it is hard to argue for it is a compelling buy candidate today.

Click here to continue:
GEA Group Looking To Milk Food And Beverage For All They're Worth

Seeking Alpha: SPX - A Complicated Power Play

It has been an interesting decade for SPX (SPW), as the company has gone through spasms of acquisition and divestiture but really hasn't set the world on fire with its margins, returns on capital, or free cash flow generation. With most of the business shuffling complete, and broadly improving utility demand, can SPX show that it deserves a spot on a list of quality industrial conglomerates?

Please continue here:
SPX: A Complicated Power Play