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Is Barnes Group Stock A Good Bet At $50?

We predict Barnes Group stock (NYSE: B) might not be an excellent funding possibility proper now. Barnes Group
is a supplier of extremely engineered merchandise, differentiated industrial applied sciences, and revolutionary options, primarily to the aerospace, transportation, manufacturing, automation, healthcare, and packaging industries. B inventory trades at little over $50 at present and is, in actual fact, down 18% for the reason that starting of 2020. It traded at $65 in February 2020 – simply earlier than the outbreak of the coronavirus pandemic – and is at present 22% beneath that stage, as nicely. B inventory has recovered 47% from its March 2020 low, in comparison with an 87% rise within the S&P 500 throughout the identical time. The inventory has underperformed the market within the final one 12 months as its main finish markets – aerospace, car, and so on. – have been essentially the most affected through the pandemic. Plane utilization continues to be low and sure airways have diminished the variety of plane in service. Although the lifting of lockdowns over latest months and vaccine rollout has enthused the inventory markets, there’s nonetheless uncertainty across the timing of full restoration in aerospace and transportation. The latest surge in Covid instances has solely exacerbated this uncertainty, as a result of which we consider that Barnes Group inventory is unlikely to see a full restoration to its pre-Covid ranges anytime quickly. Within the absence of a whole lockdown (just like the one seen in 2020) and continued financial stimulus measures, B inventory has the potential to see a ten% rise within the close to time period. Our conclusion relies on our comparative evaluation of Barnes Group stock performance during the current crisis with that during the 2008 recession in our interactive dashboard.

2020 Coronavirus Disaster

Timeline of 2020 Disaster So Far:

  • 12/12/2019: Coronavirus instances first reported in China
  • 1/31/2020: WHO declares a worldwide well being emergency.
  • 2/19/2020: Indicators of efficient containment in China and hopes of financial easing by main central banks helps S&P 500 attain a file excessive
  • 3/23/2020: S&P 500 drops 34% from the height stage seen on Feb 19, 2020, as COVID-19 instances speed up outdoors China. Doesn’t assist that oil costs crash in mid-March amid Saudi-led worth conflict
  • Since 3/24/2020: S&P 500 recovers 87% from the lows seen on Mar 23, 2020, because the Fed’s multi-billion greenback stimulus package deal suppresses near-term survival anxiousness and infuses liquidity into the system.

In distinction, right here is how B inventory and the broader market fared through the 2007-08 disaster.

Timeline of 2007-08 Disaster

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline akin to Lehman chapter submitting (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Preliminary restoration to ranges earlier than accelerated decline (round 9/1/2008)

B and S&P 500 Efficiency Over 2007-08 Monetary Disaster

B inventory dropped from ranges of over $32 in September 2007 (pre-crisis peak) to ranges of $9 in March 2009 (because the markets bottomed out), implying B inventory misplaced greater than 70% from its approximate pre-crisis peak. It recovered submit the 2008 disaster, to ranges of near $17 in early 2010, rising by greater than 80% between March 2009 and January 2010. Compared, the S&P 500 Index noticed a decline of 51% and recovered 48%.

B Fundamentals Over Current Years

Barnes Group’s revenues dropped from $1.5 billion in 2018 to $1.1 billion in 2020 as a result of slowdown in each – aerospace and industrials – segments of the corporate on account of the pandemic. Together with decrease income, margins have additionally decreased sharply over latest years. EPS has gone down from $3.18 in 2018 to $1.24 within the final twelve months. EPS in 2020 was additionally affected by increased value of gross sales and SG&A expense.

Does B Have Sufficient Money Cushion To Meet Its Obligations By The Coronavirus Disaster?

Barnes Group’s debt decreased from $944 million in 2018 to $704 million in 2020. Throughout the identical time, its whole money additionally went down from $101 million to $79 million. However B has been producing steady and wholesome money from operations over the previous couple of years, with the metric standing at $215 million in 2020. The truth that the corporate has decrease debt burden and nearly steady money technology capability will assist it tide over the present disaster.


Phases of Covid-19 Disaster:

  • Early- to mid-March 2020: Worry of the coronavirus outbreak spreading quickly interprets into actuality, with the variety of instances accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiousness
  • Could-June 2020: Restoration of demand, with gradual lifting of lockdowns – no panic anymore regardless of a gradual improve within the variety of instances
  • Since late 2020: Weak quarterly outcomes, however continued enchancment in demand and progress with vaccine growth buoy market sentiment

Regardless of the latest surge in the number of new Covid-19 cases in the U.S., we anticipate continued enchancment in demand to buoy market expectations. As traders focus their consideration on anticipated 2021 outcomes, we consider Barnes Group inventory has the potential for modest positive aspects as soon as fears surrounding the Covid outbreak are put to relaxation. Barnes Group inventory has the potential to realize 10% within the close to time period, with stronger positive aspects doable solely as soon as the timing of restoration in its finish markets turns into clearer.

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What do you think?

Written by virajthari


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