On Dec 13, we maintained our Neutral recommendation on
Rockwell Automation Inc.
), a leading global provider of industrial automation power,
control, and information solutions. Our reiteration was on the
basis of expected benefits from investment in Logix as well as
new customer offerings that will increase its served market and
growth in the oil and gas markets. However, concerns regarding
weakness in Europe and Asia Pacific might offset the positives.
Rockwell Automation reported EPS of $1.62 in the fourth quarter
of fiscal 2013, up 14% year over year and ahead of the Zacks
Consensus Estimate. Sales increased 3% to $1.7 billion in the
quarter, surpassing the Zacks Consensus Estimate.
Over the past decade, Rockwell Automation's investments in
technology and globalization has helped the company to
consistently expand its market share to approximately $90
billion, up from $80 billion a year ago. Logix is the technology
foundation that enabled Rockwell Automation to become an industry
leader for batch process applications and attain a competitive
edge over traditional Distributed Control Systems (DCS) providers
for continuous process applications.
Rockwell Automation has plans to invest in Logix and expand the
served market. Industrial network infrastructure, security,
remote automation and monitoring, active energy management,
industrial intelligence, and business analytics represent
Rockwell's new customer offerings that will help increase its
Oil and gas was Rockwell's fastest growing vertical in fiscal
2013 as the company continues to see benefits from prior
investments in the segment. Currently, oil and gas is Rockwell's
largest end market, accounting for more than 10% of the company's
total sales. It is likely to be the next big market for Rockwell
Automation over the next three to five years. Since 2007,
Rockwell has made five acquisitions to expand its Oil & Gas
domain expertise. Global capital expenditure for the oil and gas
market in FY2013 is projected at $678 billion, up 10% from
FY2012, driven by steadily rising energy demand, increasing
regulatory oversight and restrictions, and shifting energy
resources and markets.
Rockwell Automation continues to target 6%-8% long-term sales
growth. This goal includes 1%-2% growth from strategic
acquisitions. Sales mix, operating leverage and internal
productivity initiatives are expected to offset targeted growth
investments. Rockwell Automation maintains its goal of delivering
double-digit EPS growth and ROIC of more than 20% over the long
On the flipside, Rockwell Automation's performance in Asia
Pacific (13% of sales) continued to be weak in fiscal 2013,
dropping 10% - the only region where growth contracted. Sales
declined in all countries, except for Japan. India was very weak
and China sales were down 5% for the year. Weakness in China was
due to soft economic growth, lack of credit availability, and
Furthermore, given that the EMEA region contributes 21% to
Rockwell Automation's sales, we remain cautious due to Europe's
persistent debt problems. Macroeconomic conditions might continue
to be a headwind for Rockwell Automations in fiscal 2014.
Moderating global economic growth and uncertainty in the global
economic scenario can lead to cautious capital spending, limiting
Rockwell's near-term revenue visibility.
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Other Stocks to Consider
Rockwell Automation currently retains a Zacks Rank #3 (Hold).
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