RBC Bearings, Inc. ROLL seems to have lost its sheen to the end-market challenges caused by the pandemic. Notably, its price performance has been weak and its earnings estimates have been revised downward lately, indicating bearish investor sentiments.
The company is based in Oxford, CN, and has a market capitalization of $3.3 billion. It belongs to the Zacks Manufacturing – General Industrial industry, which is part of the broader Zacks Industrial Products sector.
The company presently carries a Zacks Rank #5 (Strong Sell).
In the past three months, its shares have declined 12.8% against the industry’s growth of 4%. Notably, the sector and the S&P 500 gained 4.8% and 6.3%, respectively, during the same time period.
Below we have discussed why it is prudent to avoid RBC Bearings.
Pandemic-Led Headwinds: RBC Bearings’ revenues in first-quarter fiscal 2021 (ended Jun 27, 2020) decreased 14.3% from the year-ago quarter. On a segmental basis, revenues declined 9.8% year over year for Plain bearings, 37.9% for Roller bearings and 11.5% for Engineered products.
Organic sales in the quarter were down 15.5% year over year on weakness in industrial and aerospace end markets owing to the pandemic. Industrial business suffered from weakness in mining, general industrial, natural resources and oil end markets. Meanwhile, softness in commercial aerospace had adversely influenced aerospace business.
The company believes that reduced air travelling demand will adversely impact its OEM and aftermarket commercial aerospace businesses. Further, the pandemic-woes will continue impacting industrial business in the first two quarters of fiscal 2021 (ending September 2020).
Financial Projections: The company remains wary of the pandemic-related uncertainties in the quarters ahead and hence refrained from providing financial projections for fiscal 2021 (ending March 2021).
For the second quarter of fiscal 2021 (ending September 2020), the company expects revenues to be within $148-$152 million. This compares unfavorably with the company’s year-ago reported number of $181.9 million and the previous-quarter’s reported revenues of $156.5 million.
The Zacks Consensus Estimate for second-quarter fiscal 2021 revenues is pegged at $150.7 million, suggesting a decline of 17.2% from the year-ago reported figure. Also, estimates for fiscal 2021 (ending March 2021), pegged at $621.4 million, suggest a decline of 14.6% from the previous year’s reported figure.
Stock Overvaluation: The stock currently seems to be overvalued as compared with the industry on a P/E (TTM) basis. The stock’s current multiple of 27.51 is higher than the industry’s 26.37. Also, the shares are trading higher than the industry’s three-month highest level of 26.52.
This overvaluation makes us cautious on the stock.
Earnings Estimate Trend: RBC Bearings’ earnings estimates have been revised downward in the past 60 days. Currently, the Zacks Consensus Estimate for its earnings is pegged at $3.76 for fiscal 2021, reflecting a decline of 6.5% from the 60-day-ago figure. The same for fiscal 2022 (ending March 2022) has declined 6.1% to $4.34 during the same period.
RBC Bearings Incorporated Price and Consensus
RBC Bearings Incorporated price-consensus-chart | RBC Bearings Incorporated Quote
It is worth noting here that two downward revisions have been recorded for fiscal 2021 and three downward revisions for fiscal 2022.
For the second quarter of fiscal 2021, the earnings estimate decreased 5.3% to 90 cents per share in the past 60 days. There were two downward revisions versus one upward in the past two months.
Stocks to Consider
Three better-ranked stocks in the industry are Tennant Company TNC, Altra Industrial Motion Corp. AIMC and Graco Inc. GGG. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Altra Industrial and Graco 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 these companies have improved for the current year. Further, earnings surprise for the last reported quarter was 380.00% for Tennant, 76.47% for Altra Industrial and 37.04% for Graco.
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