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Regal Beloit (RBC) Displays Bright Prospects Amid Risks

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On Nov 12, we issued an updated research report on Regal Beloit Corporation (RBC - Free Report) .

Year to date, this Zacks Rank #3 (Hold) stock has yielded a return of 0.2% against the industry’s decline of 12.7%.

Existing Scenario

Regal Beloit is experiencing robust sales in Commercial & Industrial System and Power Transmission Solutions segments. The company believes that strength in oil & gas, material handling, and aerospace end-markets will likely boost its Power Transmission Solutions segment revenues.

Also, continued growth in HVAC (heating, ventilation and air conditioning), and the oil & gas and power generation businesses will likely drive the top-line performance of the Commercial and Industrial Systems segment. In addition, robust North American residential HVAC demand is expected to boost the Climate Solutions segment's revenues. Regal Beloit currently anticipates securing mid-single digit organic sales growth in 2018.

The company is trying to defy the adverse impact of tariff related-cost inflation on the back of strategic mitigating actions. Under this regime, the company is implementing price increases and also trying to manufacture some products outside its Chinese production facilities. Regal Beloit has a global manufacturing footprint, hence transferring production in overseas facilities located in other parts of Asia and Mexico has turned out to be largely feasible.

However, rising cost of sales is a major cause of concern for Regal Beloit. The company is currently facing price inflation on both aluminum and steel on account of Section 232 tariff implemented by the White House. The company believes that this situation might become less favorable, going forward, due to the implementation of the recently-proposed Section 301 tariffs.

Further, headwinds like high customer concentration risks and cyclical nature of business might dent near-term results of the company.

Key Picks

Some better-ranked stocks in the industry are Atkore International Group Inc. (ATKR - Free Report) , Cintas Corporation (CTAS - Free Report) and Brady Corporation (BRC - Free Report) . While Atkore International sports a Zacks Rank #1 (Strong Buy), Cintas and Brady carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Atkore International surpassed estimates thrice in the trailing four quarters, the average positive earnings surprise being 24.46%.

Cintas outpaced estimates in each of the preceding four quarters, the average positive earnings surprise being 7.22%.

Brady exceeded estimates thrice in the preceding four quarters, the with average positive earnings surprise being 5.20%.

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