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On Jul 19, 2013, we initiated coverage on RBC Bearings Incorporated (ROLL - Analyst Report) with a Neutral recommendation. Based in Oxford, Connecticut, RBC Bearings manufacturers and distributes plain, roller and ball bearings.

Why Neutral?

RBC Bearings achieves a significant portion of its revenues from the aircraft industry, with the segment generating 52% of total revenue in fiscal 2013. The advancements in the commercial aircraft industry in fiscal 2013 are expected to be accretive to RBC Bearings’ revenues.

For a company like RBC Bearings, backlog plays a very crucial role. As on Mar 30, 2013, the company had roughly $216.5 million in its backlog, which is expected to be converted to revenue within the next twelve months. This makes us hopeful of the company’s future.

The company follows a consistent policy of utilizing its cash primarily for acquisitions or reinvestment in the business for organic growth. Also, the company is keen on rewarding its shareholders through share buybacks. In Feb 2013, RBC Bearings announced its plans to repurchase shares worth $50.0 million. RBC Bearings has a strong cash position, with roughly $114.5 million in cash and cash equivalents exiting fiscal 2013.

RBC Bearing’s Industrial segment has been facing headwinds over the past few quarters. Revenue generation in fiscal 2013 was negatively impacted by an 8.2% decline in the diversified industrial sales due to lower movements in the mining and military markets. Moreover, the rising price of steel, which is used as a major raw material, worries us.

The company’s overseas operations expose it to foreign currency fluctuations. For fiscal 2013, 12.0% of net sales were negatively impacted due to currency fluctuations. It is apprehended that this risk will continue to hover around the company’s financials as it plans to penetrate the foreign markets further.

Other Stocks to Consider

RBC Bearings currently carries a Zacks Rank #4 (Sell). Other stocks worth a watch in the industry are Horsehead Holding Corp. (ZINC - Snapshot Report), Precision Castparts Corp. (PCP - Analyst Report) and Norsk Hydro ASA (NHYDY), each carrying a Zacks Rank #2 (Buy).

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