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Is Barnes Group stock a good $ 50 bet?

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We think Barnes group action (NYSE: B) may not be a good investment option right now. Barnes Group
is a provider of highly sophisticated products, differentiated industrial technologies and innovative solutions, primarily for the aerospace, transportation, manufacturing, automation, healthcare and packaging industries. The B share is currently trading at just over $ 50 and is, in fact, down 18% since the start of 2020. It traded at $ 65 in February 2020 – just before the outbreak of the coronavirus pandemic – and is currently 22% below that level, as well. B-share has recovered 47% from its March 2020 low, compared to an 87% rise in the S&P 500 during the same period. The stock has underperformed the market over the past year as its main end markets – aerospace, automotive, etc. – were the most affected during the pandemic. Aircraft usage is still low and some airlines have reduced the number of aircraft in service. While the lifting of lockdowns in recent months and the rollout of vaccines have excited stock markets, uncertainty remains as to when the full recovery of aerospace and transportation. The recent surge in Covid cases has only exacerbated this uncertainty, due to which we believe the Barnes group’s action is unlikely to see a full recovery to pre-Covid levels anytime soon. . In the absence of a full foreclosure (like the one seen in 2020) and continued economic stimulus, B share has the potential to see a 10% rise in the near term. Our conclusion is based on our comparative analysis of Stock market performance of the Barnes group during the current crisis with that of the 2008 recession in our interactive dashboard.

Coronavirus crisis 2020

Timeline of the 2020 crisis so far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 01/31/2020: WHO declares global health emergency.
  • 02/19/2020: Signs of effective containment in China and hopes of monetary easing from major central banks help S&P 500 reach record high
  • 03/23/2020: S&P 500 34% drop from the peak level seen on February 19, 2020, as COVID-19 cases accelerate outside China. It doesn’t help that oil prices collapse in mid-March amid a Saudi-led price war
  • Since 03/24/2020: S&P 500 recovers 87% since the lows seen on March 23, 2020, as the Fed’s multibillion-dollar stimulus package removes short-term survival anxiety and injects liquidity into the system.

In contrast, here is how B-share and the market as a whole behaved during the 2007-08 crisis.

Timeline of the 2007-08 crisis

  • 1/10/2007: Approximate pre-crisis peak of the S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated decline in the market corresponding to Lehman’s bankruptcy filing (09/15/08)
  • 03/01/2009: Approximate low of the S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 09/01/2008)

Performance of the B and S&P 500 during the 2007-08 financial crisis

B share fell from over $ 32 in September 2007 (pre-crisis peak) to $ 9 in March 2009 (as markets bottomed out), implying B share lost more by 70% from its approximate pre-crisis peak. It recovered after the 2008 crisis, reaching levels close to $ 17 in early 2010, up more than 80% between March 2009 and January 2010. By comparison, the S&P 500 index fell by 51 % and recovered 48%.

B fundamentals in recent years

Barnes Group revenue fell from $ 1.5 billion in 2018 to $ 1.1 billion in 2020 due to the downturn in both segments – aerospace and industrial – of the company due to the pandemic. Along with declining revenues, margins have also fallen sharply in recent years. EPS has gone from $ 3.18 in 2018 to $ 1.24 in the past twelve months. EPS in 2020 was also affected by higher cost of sales and general and administrative expenses.

Does B have enough leeway to meet his obligations during the coronavirus crisis?

Barnes Group’s debt increased from $ 944 million in 2018 to $ 704 million in 2020. During the same period, its total cash position also increased from $ 101 million to $ 79 million. But B has generated stable and strong cash flow over the past few years, with an indicator of $ 215 million in 2020. The fact that the company has lower leverage and nearly stable cash-generating capacity will help it. to overcome the current crisis. .


Phases of the Covid-19 crisis:

  • From early to mid-March 2020: Fear of the rapidly spreading coronavirus epidemic results in reality, with an acceleration in the number of cases worldwide
  • End of March 2020 and beyond: social distancing measures + lockdowns
  • April 2020: Nourished stimulation suppresses short-term survival anxiety
  • May-June 2020: Resumption of demand, with progressive lifting of locks – no more panic despite a steady increase in the number of cases
  • Since the end of 2020: weak, but persistent quarterly results demand improvement and advances in vaccine development boost market sentiment

Despite the recent surge in the number of new cases of Covid-19 in the United States, we expect continuous improvement in demand to support market expectations. As investors focus on expected results for 2021, we believe Barnes Group’s stock has the potential for modest gains once fears surrounding the Covid epidemic allay. Barnes Group stock has the potential to gain 10% in the near term, with stronger gains possible only once the timing of the recovery in its end markets becomes clearer.

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