Reasons to Hold Rockwell Automation (ROK) in Your Portfolio
Rockwell Automation Inc. ROK has been benefiting from improving order levels, which is impressive, given the persisting/ongoing elevated material costs and supply-chain-related challenges.
The company’s focus on productivity has also aided in sustaining its margins. ROK’s expanding portfolio of products, solutions and services, growth investments, and acquisitions are expected to aid growth.
Let’s delve deeper and analyze the factors that make this stock worth holding on to at present.
Solid Q3 Results: Rockwell Automation reported adjusted earnings per share of $3.01 in third-quarter fiscal 2023. The bottom line improved 13.2% year over year on higher sales.
Total revenues were $2,239 million, up 13.7% from the prior-year quarter. Organic sales in the quarter were up 13.2%, surpassing our prediction of 10.5% organic sales growth.
Positive Earnings Surprise History: ROK has an average trailing four-quarter earnings surprise of 12.1%.
Optimistic Growth Projections: The Zacks Consensus Estimate for the company’s fourth-quarter fiscal 2023 earnings has moved 3% upward over the past 60 days and is pegged at $3.48 per share. It suggests growth of 14.5% from the year-ago reported figure.
Upbeat FY23 Outlook: Backed by the solid backlog levels and performance in the first nine months of fiscal 2023, as well as improvement in the availability of electronic components, Rockwell Automation expects reported sales growth of 14-16% for fiscal 2023. Organic sales growth is expected to be 14-16%.
Adjusted earnings per share are expected between $11.70 and $12.10. The mid-point of the range indicates year-over-year growth of 25% from adjusted earnings of $9.49 per share reported in fiscal 2022.
Price Performance: Shares of the company have gained 13.7% in the past year compared with the industry’s growth of 10.3%.
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Solid Order Levels: Rockwell Automation’s order levels have been improving over the past few quarters and outpacing shipments. Also, low order cancellation rates indicate the solid underlying customer demand across many industries and regions.
Huge capital investments across many end markets, coupled with higher automation and digital transformation, will continue to support solid order levels across all segments.
Strong Demand: Sales from Information Solutions and Connected Services (IS/CS) are gaining from strong order wins from software and infrastructure services. Customers in life sciences, food and beverage, mining, and many other end markets rely on Rockwell Automation to provide robust network technology and real-time domain expertise to keep their critical operations secure and resilient. Its Life Sciences solutions business is well-placed to gain from a wide range of product offerings and Sensis JV.
The company is likely to witness above-market organic sales growth by expanding its served markets and improving offerings that will provide it with a competitive edge. The company continues to drive process improvement, functional streamlining, material cost savings and manufacturing productivity in an effort to augment earnings growth.
Focus on Portfolio Expansion: Rockwell Automation is poised well to benefit from broadening its portfolio of hardware and software products, solutions and services.
The company’s FactoryTalk Design Hub development to streamline automation system design is well underway. Significant investments to globalize manufacturing, product development, building channel capability and partner network will drive growth.
Rockwell Automation continues to win expansion projects with its flexible material handling technology and digital twin software in e-commerce and warehouse automation.
It is also expanding its capacity in semiconductor applications with chip-making machinery, material handling equipment and building management systems at the world’s largest semiconductor capital equipment companies. It is witnessing improved oil and gas sales led by improving trends in upstream and midstream.
Solid Balance Sheet: Rockwell Automation maintains a strong financial position with regard to capital structure, cost-containment actions and liquidity.
The company’s total debt-to-total capital ratio has been declining over the past few quarters and stood at 49% at the end of the third quarter of fiscal 2023.
Near-Term Concerns
Rockwell Automation’s top line is bearing the brunt of supply-chain challenges and cost inflation. It anticipates supply-chain constraints to continue in fiscal 2023. The manufacturing supply chain continues to be stressed by the sharp demand rise and the ongoing shortages of electronic components, along with the pandemic-related and other global events that have put additional pressures on manufacturing output and freight lanes.
However, the company has lately noted some signs of easing.
Zacks Rank & Stocks to Consider
Rockwell Automation currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are Worthington Industries, Inc. WOR, Astec Industries, Inc. ASTE and A. O. Smith Corporation AOS. WOR and ASTE sport a Zacks Rank #1 (Strong Buy) at present, and AOS has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Worthington Industries has an average trailing four-quarter earnings surprise of 14.9%. The Zacks Consensus Estimate for WOR’s fiscal 2023 earnings is pegged at $5.65 per share. The consensus estimate for 2023 earnings has moved north by 22.6% in the past 60 days. Its shares gained 33.5% in the last year.
Astec has an average trailing four-quarter earnings surprise of 20%. The Zacks Consensus Estimate for ASTE’s 2023 earnings is pegged at $2.81 per share. The consensus estimate for 2023 earnings has moved 4% north in the past 60 days. ASTE’s shares gained 22.8% in the last year.
The Zacks Consensus Estimate for A. O. Smith’s 2023 earnings per share is pegged at $3.57. The consensus estimate for 2023 earnings has moved 5% north in the past 60 days. It has a trailing four-quarter average earnings surprise of 10.5%. AOS gained 11.1% in the last year.
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Worthington Industries, Inc. (WOR) : Free Stock Analysis Report
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Rockwell Automation, Inc. (ROK) : Free Stock Analysis Report
