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RBC Bearings to Gain From Solid Demand in Markets Amid Risks

Zacks Equity Research

On Mar 11, we issued an updated research report on RBC Bearings Incorporated ROLL.

In the past month, this Zacks Rank #3 (Hold) stock has returned 2.2% compared with the industry’s rise of 1%.

Existing Scenario

RBC Bearings anticipates that sturdier industrial original equipment manufacturers as well as mining, oil and gas, and machine tool demand will drive industrial revenues, going forward. Also, steady aftermarket and distribution demand is likely to boost the company’s industrial revenues. Further, new contracts and higher defense and aerospace OEM demand will boost its aerospace sales in the quarters ahead. Notably, on a year-over-year basis, RBC Bearings anticipates revenue growth of 1.7-2.9% for fourth-quarter fiscal 2019.

Moreover, the company has been improving its liquidity on the back of increased cash generation over the past few quarters.  RBC Bearings intends to lower its debt burden, fund new growth-oriented investments and provide higher returns to shareholders with these proceeds. Notably, in first nine months of fiscal 2019, the company lowered its debt by $83.4 million.

However, RBC Bearings’ aerospace sales in third-quarter fiscal 2019 were hurt by certain supply-chain constraints, both internal and external that continued to trouble several of its aerospace divisions. These issues might continue to dent its revenues in the quarters ahead.

In addition, rising cost of sales remains a cause of concern for the company. Notably, RBC Bearings' cost of sales increased 1.2% year over year in the third quarter of fiscal 2019 (ended Dec 29, 2018). Also, the company’s selling, general and administrative expenses jumped 3.5%. Notably, escalating costs, if unchecked, might weigh over its bottom-line performance.

Key Picks

Some better-ranked stocks from Zacks Industrial Products sector are iRobot Corporation IRBT, Brady Corporation BRC and Tetra Tech, Inc. TTEK. While iRobot sports a Zacks Rank #1 (Strong Buy), Brady and Tetra Tech carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot delivered average earnings surprise of 92.23% in the trailing four reported quarters.

Brady pulled off average positive earnings surprise of 5.71% in the previous four reported quarters.

Tetra Tech delivered average earnings surprise of 7.34% in the trailing four reported quarters.

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