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Sometimes you can have a good company that finds its stock a bit ahead of itself, which is what I think we are seeing here in Barnes Group (NYSE:B), today's Bear of the Day.

If you are not familiar with the company, Barnes Group (Zacks Rank No. 5) is an international aerospace and industrial manufacturing and services provider that serves a wide range of end markets and customers. The products and services provided by the company are used in far-reaching applications that provide transportation, communication, manufacturing, and technology to the world. Many of their products are highly engineered, high quality (high price) products for those industries.

In a world that is seeing slowing growth on the downswing rather than on the rise, I am concerned that the 50% increase in the share price and 19x earnings multiple might be a little rich. I have no doubt the company will continue to sell its components, but its growth looks questionable in the second quarter.

Barnes generates roughly 20% of its sales in Europe, 18% in Asia and 62% in the Americas.

Last Earnings Report

Barnes Group reported Q1 adjusted earnings per share of 40 cents, up roughly 25% year over year in late April. The results fell 11.1% short of the Zacks Consensus Estimate for 45 cents. Revenue in the quarter grew 18.3% year over year, primarily due to healthy performance in the Industrial segment. The impact of revenue increase was, to a large extent, negated by 10.8% and 61.2% increase in cost of sales and selling and administrative expenses, respectively. Operating income grew a mere 1.4%, while operating margins fell 150 basis points.

Of bigger concern was Barnes' anticipation of recording income tax charges to the tune of $20 million in the current quarter. The company's cash flows are expected to be negatively impacted by $13 million related to an unfavorable tax ruling.

Earnings Trajectory

While the stock price has been moving higher, analysts' expectations have been doing the opposite. Most of the analysts who cover the stock moved estimates lower since their last earnings report, with the current quarter's results dropping from 54 cents to the current 46 cents. FY 2013 estimates also came down 11.2% from $2.14 per share to $1.90.

Barnes is expected sales to decrease 1.42% for FY 2013, but for earnings to increase 12% on cost cuts and efficiency. Given its tax situation, margin issues and declining economic conditions, I wonder if Barnes will be able to meet those expectations. Barnes has missed earnings expectations three of the last four quarters by an average of 4%, yet the shares continue to outperform.

While Barnes is still a great company, its Zacks Rank of 5 (Strong Sell) coupled with the negativity among analysts makes it a little risky for my blood. If you are looking for a unique industrial company, you might check out Graco, Inc. (NYSE:GGG) (Zacks Rank No. 1) or Colfax Corp. (NYSE:CFX) (Zacks Rank No. 2).

Barnes Group: Free Stock Analysis Report (email registration required)

Colfax: Free Stock Analysis Report (email registration required)

FedEx: Free Stock Analysis Report (email registration required)

Graco: Free Stock Analysis Report (email registration required)

Source: Bear Of The Day: Barnes Group