Posts Tagged ‘stock picking’

Colfax valuation

May 27th, 2009 Comments off

Yesterday Colfax’s stock (NYSE: CFX) traded at $ 8.35

Shares outstanding are 43.21 mil which translates into a market capitalization of $ 362 mil.

Analysts expect Colfax to grow 7% over the next years.

Danaher’s growth rate over the past 10 years was 17.5%

I think that after a difficult year 2009 we can be slighty more optimistic than analysts and expect Colfax to grow at an 10% annual rate.

I would expect Colfax to acquire at least one company per year.

They have a strong balance sheet and with the economy in recession smaller companies will certainly be available at good prices. This should make acquisitions immediately accretive to earnings.

And don’t forget that Colfax’s earnings are still impacted by asbestos liabilities. It costs them about 40% of their earnings power this year.

But those costs should rapidly decline over the next years.

Management expects EPS this year in the range of $ 1.00 – 1.07 excluding the asbestos liabilities and costs.

So with a 10% annual growth rate the company should at least earn $ 1.61 / share within 5 years.

At a conservative p/e ratio of 10 this means the share price should roughly double to $16.10 (I don’t expect a significant dilution of shareholders given the strong insider holdings).

I think at today’s prices we are able to invest in a very promising company with a significant margin of safety!

…..this blog will continue to keep an eye on Colfax!