IDEX (IEX) Gains From Segmental Strength Amid Supply-Chain Woes
IDEX (IEX) seems to benefit from a healthy product demand in end markets, including industrial, water and life sciences. Supply-chain, inflation and logistics woes are likely to affect the company.
IDEX Corporation IEX is a specialist in providing fluid and metering technologies, fire, safety and other products, and health and science technologies. It is headquartered in Lake Forest, IL, and has operations globally.
The company belongs to the Zacks Manufacturing - General Industrial industry, which, in turn, comes under the ambit of the Zacks Industrial Products sector. The industry players are benefiting from economic recovery and an increase in manufacturing activities, while the prevalent headwinds related to the supply chains and cost inflation are major concerns.
A number of factors are influencing IDEX’s prospects. A brief discussion on the important factors and financial projections is discussed below:
Segmental Strength: The company’s segments are benefiting from a healthy product demand. In second-quarter 2021, its revenues for the Fluid & Metering Technologies segment increased 14.7% year over year, the same for Health & Science Technologies expanded 27.5% and that for Fire & Safety/Diversified Products grew 26.5%.
For 2021, the company anticipates healthy demand in water, agriculture and industrial markets to benefit its Fluid & Metering Technologies segment. Strength in life sciences, food/pharma, analytical instrumentation, semiconductor, automotive and industrial markets are expected to aid the Health & Science Technologies segment. The Fire & Safety/Diversified Products segment is expected to benefit from industrial, dispensing, automotive and other markets.
Capital Allocation: The company effectively uses its capital for rewarding shareholders, engaging in acquisitions and boosting organic prospects. In the first half of 2021, the company disbursed $79.2 million as dividends (the quarterly dividend rate was increased by 8% to 54 cents in May 2021). No share buybacks were done in the first half.
Regarding acquisitions, IDEX added Abel Pumps L.P. to its portfolio in March 2021. It also acquired Airtech Group, US Valve Corporation and other entities in June. An earnings accretion of 6 cents is anticipated from the Airtech buyout in the second half of 2021.
In second-quarter 2021, acquisitions added 1% to IDEX’s sales growth.
Company’s Projections: The company anticipates earnings of $6.26-$6.36 per share for 2021 and $1.57-$1.61 for third-quarter 2021. The yearly projection suggests a rise from the prior-year reported figure of $5.19. It previously expected $6.05-$6.20 for 2021.
As compared with previously mentioned growth of 9-10%, the company anticipates sales to increase 11-12% year over year.
Cost Woes: IDEX’s operating margin suffered from higher corporate expenses, inflation, supply-chain restriction and other cost woes in second-quarter 2021. Cost of sales increased 16.4% from the year-ago quarter, and selling, general and administrative expenses grew 20.2%.
The company’s performances in the quarters ahead might continue to be impacted by the adverse impacts of inflation in costs, logistics problems, restrictions in the supply chain, and an increase in corporate expenses ($77 million expected for 2021 versus $74 million stated previously).
Some other players in the industry, which have been adversely impacted by the above-mentioned prevailing headwinds, are Illinois Tool Works Inc. ITW, Dover Corporation DOV and Altra Industrial Motion Corp. AIMC.
Market-Related Issues: IDEX expects weakness in the fire-rescue market to impact its performance in the Fire & Safety/Diversified Products segment in 2021. The Fluid & Metering Technology segment will likely suffer from issues in the chemical and energy markets.
A wide presence in international markets has exposed IDEX to risks from foreign currency movements, competition from local players, geopolitical issues and macroeconomic challenges.
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