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Rockwell Automation, Inc. ROK has entered into an agreement to acquire Plex Systems for a cash payment of $2.22 billion in a bid to expand its cloud solutions offerings to industrial customers. Notably, the acquisition will boost Rockwell’s software revenue growth and strengthen its annual recurring revenue streams.
Plex is a leader in cloud-delivered smart manufacturing solutions, and offers innovative manufacturing execution systems, quality, and supply-chain management capabilities. The company’s manufacturing platform helps customers connect, automate, track, and analyze their operations and connected supply chains.
The latest buyout will aid Rockwell’s strategy to grow Connected Enterprise, while supporting customers’ increasing preference to adopt cloud solutions in order to improve agility, resilience and sustainability in their operations. Plex’s cloud technology and Rockwell’s existing software solutions will jointly deliver the highest customer value and open up scope for new business wins. The buyout is likely to be immediately accretive to Rockwell’s operating margins.
Last December, Rockwell acquired Toronto-based Fiix Inc., which is a privately-held, artificial intelligence enabled computerized maintenance management system (CMMS) company. This acquisition aided Rockwell customers to monitor and improve their assets performance as well as optimize maintenance work. Along with this, the Plex buyout will provide Rockwell a robust cloud-native solutions portfolio for its customers’ production systems.
Following the buyout, Plex will become part of Rockwell’s Software and Control segment. This segment is focused on providing hardware and software solution offerings for the design, operation, and maintenance of production automation and management systems. The deal will be funded by combining cash as well as short-term and long-term debt. Rockwell had cash and cash equivalents of around $642 million, short-term debt of $25.6 million and long-term debt of around $2 billion as of Mar 31, 2021. The company expects to close the agreement during the September-end quarter.
Rockwell is well poised to benefit from its focus on broadening the portfolio of hardware and software products, solutions and services. Further, significant investments to globalize manufacturing, product development and customer-facing resources will stoke growth. The company is likely to witness above-market growth by expanding its served markets and improve offerings. Moreover, higher levels of infrastructure spending and a growing middle-class population will fuel demand for consumer products in emerging markets. This will require manufacturing investment and provide the company with additional growth opportunities. The company is focused on buyouts that will augment its information solutions and high-value services offerings and capabilities, while expanding global presence, or enhancing process expertise.
Rockwell Automation has been witnessing increased order levels on growth in core automation platforms, Information Solutions & Connected Services (IS/CS), and buyouts. Considering this, management raised the fiscal 2021 adjusted earnings per share guidance to the band of $8.95-$9.35 from the prior guidance of $8.70-$9.10.
Share Price Performance
The company’s shares have gained 14.8%, so far this year, outperforming the industry’s growth of 14.3%.
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Zacks Rank & Stocks to Consider
Rockwell currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector are Tennant Company TNC, Encore Wire Corp. WIRE and Arconic Corp. ARNC. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tennant has an anticipated earnings growth rate of 49.5% for 2021. The company’s shares have gained around 18%, year to date.
Encore Wire has an estimated earnings growth rate of 49.5% for the ongoing year. Year to date, the company’s shares have rallied nearly 36%.
Arconic has a projected earnings growth rate of 447% for the current year. The stock has appreciated around 21%, so far this year.
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