Bear of the Day: Barnes Group (B) - Bear of the Day
June 17 2013 - 1:06AM
Zacks
Bull AKAM 061613
Sometimes you can have a good company that
finds its stock a bit ahead of itself, which is what I think we are
seeing here in Barnes Group, today’s Bear of the Day.
If you are not familiar, Barnes Group B (Zacks Rank #5) is an
international aerospace and industrial manufacturing and services
provider, serving a wide range of end markets and customers. The
products and services provided by the company are used in
far-reaching applications that provide transportation,
communication, manufacturing and technology to the world.
Many of their products are highly engineered,
high quality (high price) products for those industries. In a
world that is seeing slowing growth on the downswing rather than on
the rise, I am concerned that the 50% rise in share price and 19
times earnings multiple might be a little rich. I have no
doubt the company will continue to sell its components, but their
growth looks questionable in the second quarter.
Barnes generates roughly 20% of its sales in
Europe, 18% in Asia and 62% in the Americas.
Last Earnings
Report
Barnes Group reported Q1 adjusted earnings per share of 40 cents,
up roughly 25% year over year in late April; the results fell 11.1%
short of the Zacks Consensus Estimate for 45 cents.
Revenue in the quarter grew 18.3% year over
year, primarily due to healthy performance in the Industrial
segment. The impact of revenue increase was, to a large extent,
negated by 10.8% and 61.2% increase in cost of sales and selling
and administrative expenses, respectively. Operating income grew a
mere 1.4% while operating margin fell 150 basis points.
Of bigger concern was Barnes’ anticipation of
recording income tax charges to the tune of $20 million in the
current quarter and the company’s cash flows are expected to be
negatively impacted by $13 million related to an unfavorable tax
ruling.
Earnings
Trajectory
While the stock price has been moving higher, analysts’
expectations have been doing the opposite.
Most of the analysts that cover moved
estimates lower since their last earnings report, with the current
quarter’s results dropping from 54 cents to the current 46
cents. FY2013 estimates also came down 11.2% from $2.14 per
share to $1.90.
Barnes is expected sales to decrease 1.42% for
FY2013, but for earnings to increase 12% on cost cuts and
efficiency. Given their tax situation, margin issues and
declining economic conditions, I wonder if they will be able to
meet those expectations.
Barnes has missed earnings expectations 3 of
the last 4 quarters by an average of 4% and yet the shares continue
to outperform.
While Barnes is still a great company, its
Zacks Rank of 5 (Strong Sell) coupled with the negativity amongst
analysts makes it a little risky for my blood. If you are
looking for a unique industrial company, you might check out
Graco Inc. GGG (Zacks Rank
#1) or Colfax Corp. CFX
(Zacks Rank #2).
Jared A Levy is
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BARNES GRP (B): Free Stock Analysis Report
COLFAX CORP (CFX): Free Stock Analysis Report
FEDEX CORP (FDX): Free Stock Analysis Report
GRACO INC (GGG): Free Stock Analysis Report
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