We have issued an updated research report on RBC Bearings Incorporated ROLL on May 26.
The company, with a market capitalization of $3.2 billion, is one of the leading manufacturers and distributors of plain, roller and ball bearings. It is headquartered in Oxford, CN.
Factors Favoring RBC Bearings
Top-Line Tailwinds: In fourth-quarter fiscal 2020 (ended March 2020), RBC Bearings’ revenues increased 2% year over year. Organic sales too inched up 0.1%. Aerospace sales in the quarter grew 4.3% year over year, driven by strength in the defense and OEM businesses.
In fiscal 2021 (ending March 2021), the company might benefit from a solid backlog level, which was at $478.6 million at the end of fiscal 2020. On a year-over-year basis, backlog reflected growth of 7.5%. Also, the defense business in the year is likely to flourish, while the industrial business might witness a revival in demands in the second half of the fiscal year.
Rewards to Shareholders: RBC Bearings believes in rewarding shareholders handsomely through share buybacks. In fiscal 2020, the company bought back shares worth $12.2 million, higher than $5.2 million in the previous year.
It is worth noting here that its board of directors approved a $100-million share repurchase plan in May 2019.
Healthy Liquidity: The company had a cash and cash equivalents of $103.3 million at the end of fiscal 2020. Also, it had $259.1 million liquidity available under its revolving credit facilities.
We believe that such liquidity might help the company effectively deal with the pandemic-related worries and fund growth investments. Also, satisfying financial obligations will be easy. At the end of the fourth quarter, the company’s times interest earned was 82.8x, higher than 66.5x at the end of the previous quarter. Also, its total debt to total capital was 4.5%, lower than 4.6% reported in the previous quarter.
Factors Working Against RBC Bearings
Top-Line Woes: The company’s industrial and commercial aerospace businesses were adversely impacted by the pandemic in the fourth quarter of fiscal 2020. Also, Boeing 737 Max-related issues played spoilsport for the commercial aerospace business.
In fiscal 2021, headwinds related to the pandemic will likely continue to hurt RBC Bearings’ operations. The industrial business will likely be impacted in the first half of the fiscal year. Further, commercial aerospace (including aftermarket and OEM) will likely be impacted by reduced air travel and lower production rates.
In the first quarter of fiscal 2020 (ending June 2020), the company’s revenues are expected to be $150-$155 million, suggesting a decline from $182.7 million reported in the year-ago quarter.
Cost and Expense Woes: High costs and expenses might be concerning for RBC Bearings, and might hurt its margins and profitability. In fiscal 2020, its cost of sales totaled $438.4 million, reflecting a year-over-year increase of 2.9%. Further, selling, general and administrative expenses expanded 4.3% year over year.
It is worth mentioning here that the company’s cost of sales expanded 3% (CAGR) in the last five fiscal years (2016-2020). Further, selling, general and administrative expenses increased 4.4% (CAGR) during the same timeframe.
Share Price Performance and Overvaluation: Market sentiments have been against RBC Bearings for quite some time now. Its stock price has decreased 27.6% in the past three months compared with the industry’s decline of 15.7%.
Moreover, the company’s stock is presently overvalued compared with the industry on a P/E TTM basis, with respective tallies of 25.21x and 19.1x. Also, its current multiple is higher than the industry’s three-month highest level of 21.17x.
The company currently carries a Zacks Rank #4 (Sell).
Stocks to Consider
Some better-ranked stocks in the Zacks Industrial Products sector are Silgan Holdings Inc. SLGN, Broadwind Energy, Inc. BWEN and Graphic Packaging Holding Company GPK. While Silgan currently sports a Zacks Rank #1 (Strong Buy), both Broadwind Energy and Graphic Packaging carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, earnings estimates for Silgan Holdings and Graphic Packaging improved for the current year while remain unchanged for Broadwind Energy. Further, earnings surprise for the last reported quarter was 16.33% for Silgan Holdings, 200% for Broadwind Energy and 24% for Graphic Packaging.
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