Earnings estimates have been falling for EnPro Industries (NPO – Snapshot Report) following a Q4 earnings miss in February. The magnitude of these revisions was large enough to send the stock to a Zacks Rank #5 (Strong Sell), putting it in the bottom 5% of all stocks that Zacks ranks based on earnings estimate revisions.
Despite this, shares trade at a lofty 24x forward earnings and 23x enterprise value/cash flow. Based on these factors, EnPro doesn’t appear to offer investors attractive upside potential near term.
EnPro Industries manufactures sealing products, metal polymer and filament wound bearings, components and service for reciprocating compressors, diesel and dual-fuel engines and other engineered products for use in a variety of industries around the globe.
Fourth Quarter Results
EnPro reported its fourth quarter results on February 19. Adjusted earnings per share came in at $0.52, missing the Zacks Consensus Estimate of $0.61.
Net sale rose 15% year-over-year to $316.4 million, which was actually ahead of consensus. This was due in large part to higher revenues from the ‘Power Systems’ (16% of total sales in 2014) and ‘Sealing Products’ (54% of total sales) segments. Sales in the ‘Engineered Products’ segment (29% of total sales) fell by 4%.
The total segment profit margin increased to 12.0% of sales, up from 9.0% in the same quarter last year. This was due in large part to big gains in the ‘Power Systems’ segment, thanks to $25.0 million in completed contract engine revenue recorded in the quarter compared to none in the Q4 2013.
Looking ahead to 2015, management warned that “economic volatility outside of North America and slowing project and maintenance spending in the oil and gas markets could result in lower demand levels in a few of our businesses. In addition, the weakening of the euro and other foreign currencies will likely have a negative translation effect on our sales and earnings for the year.”
Analysts revised their estimates significantly lower for both 2015 and 2016 after the report, sending the stock to a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for 2015 is now $2.23, down from $2.89 just 30 days ago. The 2016 consensus is currently $2.62, down from $3.06 over the same period.
EnPro is not the only company in its industry seeing a significant drop in earnings estimates. The ‘Machine – General Industrial’ industry currently ranks in the bottom 8% of all industries that Zacks ranks based on earnings momentum.
Shares of EnPro do not look like a value here at 24x 12-month forward earnings, which is well above the industry median of 17x. Its enterprise value to trailing-twelve month cash flow ratio of 23 is no bargain either and is well above the industry multiple of 11.
The Bottom Line
With weak earnings momentum and lofty valuation, EnPro does not offer much upside potential near term. Investors should consider avoiding the stock at least until consensus estimates stop falling.