- Rexnord Corporation (RXN) in February announced a spin/sale of its Process Motion Control segment, a solid industrial recovery business.
- Upon closing, Rexnord will become a pureplay water management business, which we view as a Compounder, averaging 5.5% organic topline growth and 8.7% annual EBITDA growth going back 8 years.
- Due to secular ESG growth trends and high FCF margins, water management companies today trade between 17x to 28x EBITDA.
- There remains a conglomerate discount with RXN today, but net of the PMC segment, the implied multiple of Rexnord’s water business today is only 15x.
- Should RXN’s water management business trade in line with its peer average, the stock would trade ~22% higher today (44% via hedging out RBC shares).
For further details see:
Special Situation: Buy A Hidden Compounder In Rexnord Corporation