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RBC Bearings (ROLL) Displays Bright Prospects Amid Risks

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On Sep 24, we issued an updated research report on RBC Bearings Incorporated .

In the past three months, this Zacks Rank #3 (Hold) stock has yielded a return of 20.1% compared with the industry’s gain of 13.9%.

Existing Scenario

RBC Bearings expects that robust industrial original equipment manufacturers’ (OEM) demand as well as aftermarket and distribution demand will drive its industrial revenues. Notably, new contracts, additional engine and airframe builds, and higher defense and aero industrial OEM demand are likely to drive its aerospace sales in the quarters ahead. For instance, the company currently anticipates revenue growth of 6.1-7.9% in second-quarter fiscal 2019.

Also, RBC Bearings has been improving its liquidity on the back of increased cash generation over the past few quarters. The company intends to lower its debt burden, fund new growth-oriented investments and provide higher returns to shareholders with these proceeds. For instance, in first-quarter fiscal 2019, RBC Bearings lowered its debt by $30.1 million.

Moreover, analysts have become increasingly bullish on the company. The Zacks Consensus Estimate for fiscal 2019 earnings has trended up over the past couple of months from $4.65 to $4.73, led by three upward estimate revisions versus none downward.

However, over the past several quarters, rising cost of sales has remained a major concern for the company. Notably, in first-quarter fiscal 2019, the company’s cost of sales flared up 6.2% year over year. Escalating cost, if unchecked, might weigh over RBC Bearings’ bottom-line performance in the quarters ahead.

Also, existing supply-chain constraints within some aerospace manufacturing facilities remain a concern for the company.

Stocks to Consider

Some better-ranked stocks from the same space are Colfax Corporation , Altra Industrial Motion Corp. and IDEX Corporation (IEX - Free Report) . While Colfax sports a Zacks Rank #1 (Strong Buy), Altra Industrial Motion and IDEX carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Colfax surpassed the Zacks Consensus Estimate thrice in the trailing four quarters, delivering a positive average earnings surprise of 7.91%.

Altra Industrial Motion exceeded the Zacks Consensus Estimate thrice in the trailing four quarters with an average positive earnings surprise of 4.01%.

IDEX outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 4.37%.

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