Rockwell Automation (ROK) Rides on Investments & Acquisitions

On Mar 28, we issued an updated research report on Rockwell Automation, Inc. ROK. The company is poised to gain from strength in heavy industries, growing investment and acquisitions in the days ahead. However, its results may be affected by concerns in Europe and tariffs.

Let’s illustrate these factors in detail.

Strength in Heavy Industries Fuels Growth

Heavy industries performed well in first-quarter fiscal 2019, thanks to strength in mining, open paper and metals. In addition, growth in emerging markets will create demand for semiconductor and other heavy industries.

For fiscal 2019, Rockwell Automation maintained its adjusted EPS guidance at $8.85-$9.25, which represents 12% year-over-year growth at the mid-point. It anticipates organic sales growth of 3.7-6.7%. The company is poised to benefit from its focus on broadening the portfolio of hardware and software products, solutions and services. Further, significant investments to globalize manufacturing and develop products will stoke growth. The company is likely to witness above-market growth through a combination of share gains in core platforms, double-digit growth in Information Solutions and Connected Services, as well as contribution from acquisitions and inorganic investments. Rockwell Automation also expects segment operating margin to expand to 22% in the current fiscal. Moreover, focus on productivity and actions to mitigate the impact of tariffs will likely be conducive to growth.

Investments & Acquisitions Provide Support

In fiscal 2018, Rockwell Automation made several investments, including a $1-billion equity investment in PTC. Notably, PTC is the leader in the Industrial Internet of Things and augmented reality. The company’s investment and alliance with PTC will accelerate growth for both companies. On Jan 28, 2019, Rockwell Automation announced the takeover of a U.K.-based software company, Emulate3D. This acquisition is in sync with the company’s growth strategy. Moreover, it is actively engaged in the evaluation of inorganic opportunities to accelerate the Connected Enterprise strategy.

Tariffs Remain a Woe

Rockwell Automation expects to offset the negative impact of tariffs through the implementation of supply-chain alternatives, negotiations with vendors and price adjustments on effective products. Nevertheless, the company expects tariffs to have an unfavorable impact in second-quarter fiscal 2019 due to the timing of selective price increases.

Concerns in Europe

Rockwell Automation’s European operations will be hampered due to slowdown in export growth, driven by a strong Euro against emerging market currencies and escalating oil prices.

Rockwell Automation, Inc. Price and Consensus

Rockwell Automation, Inc. Price and Consensus | Rockwell Automation, Inc. Quote

Zacks Rank & Stocks to Consider

Rockwell Automation currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc MLI, Lawson Products, Inc. LAWS and Albany International Corp. AIN, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 19.2%, over the past year.

Lawson Products has an outstanding projected earnings growth rate of 102.5% for the current year. The stock has appreciated 21.8% in a year’s time.

Albany International has an estimated earnings growth rate of 44.7% for the ongoing year. The company’s shares have gained 14%, in the past year.

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