Colfax Corporation (CFX) Gabelli Research Analyst Matthew Trusz (3-1-2018)

Colfax Corporation (CFX) Gabelli Research Analyst Matthew Trusz (3-1-2018)

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Transcript: Colfax manufactures welding products, fans, and compressors for global infrastructure and industrial applications. The Annapolis Junction, Maryland company-based has 123.2 million shares outstanding.

The stock closed recently at $33.10 for a $4.1 billion equity market cap plus 799 million of net debt, 227 million of noncontrolling interest, and less a 164 million dollar stake in CIR at market for a $5 billion total enterprise value.

I changed my recommendation on Colfax to Buy from Hold when shares old off after fourth-quarter earnings. One reason for my recommendation is that Colfax has an attractive welding business which is generating 330 million of EBITDA, or about three-fifths of total segment EBITDA. As one of three dominant global welding companies, Colfax has a wide economic moat due to the consolidated distribution channel and the technology-intensive nature of the industry.

Investors worry about Colfax’s coal-fired power exposure, but looking forward it makes up less than $500 million of the company’s $3.3 billion of revenue. The coal-related aftermarket business in Asia is actually growing in the double digits, but aftermarket in developed markets is under pressure and China’s government has slowed the pace at which that country is building new coal-fired capacity.

Finally, Colfax is generating a lot of cash and is on the hunt for deals. We expect around $300 million of cash flow this year. Altogether, the company will have $1.5bn of dry powder, and management wants to do a large acquisition to add a third platform to the company.

I expect Colfax to earn 2.10 per share this year, 2.25 next year, and 2.45 in 2020. After the recent selloff, the stock trades at 10x forward EBITDA and under 15x P/E. In our view, that’s a bargain and opportunity to buy shares.

Source: Gabelli TV (via YouTube)
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