7. IDEX Corporation (NYSE:IEX)
Number of Hedge Fund Investors in Q1 2024: 25
Average Analyst Share Price Upside: 17%
Average Analyst Share Price Target: $239.26
IDEX Corporation (NYSE:IEX) makes and sells a variety of industrial products such as valves, pumps, seals, and equipment also used in the medical, automotive, and chip fabrication industries. It is one of the most interesting companies on our list of the top manufacturing stocks. This is because IDEX Corporation (NYSE:IEX) has over 50 subsidiaries, and they sell specialty and niche products that have few competitors. Not only does this provide the firm a key competitive moat in a wide set of industries, but it also means that IDEX Corporation (NYSE:IEX) enjoys pricing power to set its own terms. Cumulatively, this has translated well into financial performance, with more than $600 million in free cash flow generated during 2023. Additionally, one key bit to understanding IDEX Corporation (NYSE:IEX)’s stock is that the firm has built out its portfolio through acquisitions. This means that investors have to be on the watch out for IDEX Corporation (NYSE:IEX)’s choice of funds for its deals. While its cash flow provides it with little need to raise debt, a downturn in any industry that impacts revenue coupled with acquisition agreements already in place could strain the balance sheet.
Ensemble Capital shared quite a bit of details about IDEX Corporation (NYSE:IEX)’s strengths and weaknesses in its Q1 2024 investor letter where it outlined:
“So what are some of the risks we face as shareholders of IDEX? Like with any serial acquirer, the company must continue to find acquisitions to execute, while being prudent in the quality and valuation of deals. We also expect IDEX to monitor shifting technologies and trends, and to respond appropriately in its capital allocation priorities, for example via divestitures and acquisitions. The company seems to be doing so by investing in faster growing areas recently like medical applications, optical devices, and specialty materials over traditional industrial pumps.
And what are some potential positive catalysts? IDEX has proven its ability to generate attractive returns from acquisitions in the past, and this could bode well for its chance to further compound shareholder value. We think IDEX could ramp the cash it deploys into acquisitions and it has gained the ability to do bigger deals. It generated over $600 million in free cash flow in 2023, and we think it could add significantly more debt to its balance sheet without damaging its creditworthiness. IDEX could also report improving sales growth as its customers are mostly through their de-stocking phase from inventory built-up amid the pandemic. Along with a new CFO, Abhi Khandelwal, who re-joined IDEX in November 2023, we think IDEX might be ready to fire on all cylinders.”
