RBC Bearings (ROLL) to Gain From Solid End Markets Amid Risks
RBC Bearings Incorporated ROLL is poised to benefit from strength in its industrial business, supported by strong demand across its general industrial, mining and energy markets. In fourth-quarter fiscal 2022 (ended Apr 2, 2022), sales at the company’s industrial segment increased 297.3% on a year-over-year basis. Also, improvement in its defense businesses along with its solid backlog of $603.1 million (exiting the fiscal fourth quarter) is expected to drive its performance in the quarters ahead. For first-quarter fiscal 2022 (ending June 2022), it expects sales in the range of $355-$365 million (including the contribution from the DODGE buyout), indicating growth of 127.3-133.7% year over year.
The company intends to strengthen its businesses with the acquisition of assets. It acquired ABB Ltd’s ABB DODGE mechanical power transmission division in November 2021. The buyout has been strengthening its product offerings and customer base across industrial, aerospace and defense markets. Also, the buyout is expected to enhance its cash earnings per share by 40-60% in the initial full year of completion of the transaction.
It remains focused on rewarding shareholders through share repurchase programs. In fiscal 2022, it repurchased shares worth $8.5 million, reflecting an increase of 24.6% from the year-ago quarter. Exiting fiscal 2022, shares worth $79.1 million were left for repurchase under its May 2019 share buyback program.
However, RBC Bearings has been dealing with escalating costs and operating expenses over the past few quarters. In the fiscal fourth quarter, the company’s cost of sales jumped 126.4% year over year, while its selling, general and administrative expenses increased 104.4%. In the quarter, its adjusted operating margin declined 70 basis points year over year.
A high debt level also poses a concern for the company. It had long-term debt of $1,686.8 million at the end of the fiscal fourth quarter, but cash and cash equivalents were just $182.9 million. In fiscal 2022, its interest expenses were $41.5 million, higher than $1.4 million in fiscal 2021.
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In the past three months, the Zacks Rank #3 (Hold) company’s share price has declined 1.3% compared with the industry’s decline of 5.7%.
Stocks to Consider
A couple of better-ranked companies from the same space are discussed below.
Applied Industrial Technologies, Inc. AIT presently sports a Zacks Rank #1 (Strong Buy). AIT delivered a trailing four-quarter earnings surprise of 25.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
AIT’s earnings estimates have increased 5.9% for fiscal 2022 (ending June 2022) in the past 60 days. Its shares have inched up 5.2% in the past three months.
IDEX Corporation IEX is presently Zacks #2 (Buy) Ranked. IEX’s earnings surprise in the last four quarters was 2.8%, on average.
In the past 60 days, the stock’s earnings estimates have increased 3.4% for 2022. The stock has gained 1.8% in the past three months.
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