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Regal Beloit (RBC) Poised for Growth Despite Headwinds
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On Jan 16, we issued an updated research report on industrial goods manufacturer Regal Beloit Corporation (RBC - Free Report) .
Headquartered in Beloit, WI, Regal Beloit is a leading manufacturer of electrical and mechanical motion control products. The company offers a wide array of stock model and customized electric motors, blowers, electric generators, transfer switches, switchgear, valves, gearboxes, power generation components and controls. Regal Beloit has manufacturing, sales and service facilities throughout the U.S., Canada, Mexico, Europe and Asia. The company markets its products to a diversified customer base across the globe including OEMs, distributors and end users.
Regal Beloit has outperformed the Zacks categorized Manufacturing-Electronics industry in the last three months with an average return of 20.4% compared with 7.2% for the latter. Regal Beloit’s long-term growth strategy involves organic growth through product innovation, broadening of customer base, exploitation of new opportunities and tactical investments in emerging markets. Over the years, the company has consolidated its product lines and streamlined product brands to evolve as a dynamic enterprise. In order to drive continuous improvement, Regal Beloit follows ‘Compass Operating System’ that encompasses a common set of business processes, disciplines and lean Six Sigma tools. Backed by an “open-door” management style, the company has gained a competitive edge and reached customers in diverse markets around the world.
In addition, Regal Beloit continues to focus on investments for disciplined capital allocation, strong and flexible balance sheet position and cash flow enhancement to support dividend growth. We believe that such moves along with its robust operating platform and efficient management team will help in the execution of strategic priorities and drive net asset value. The company’s strong free cash generation is another positive, providing it an opportunity to pursue accretive acquisitions and unlock additional value. Going forward, Regal Beloit remains confident of generating robust operating cash flow to fund its organic and inorganic growth as well as to return significant capital to shareholders.
However, Regal Beloit faces increased concentration risks as a significant amount of its revenue is obtained from a handful of customers. The loss of any one of these customers could affect the company’s top line. Adverse foreign currency translation, soft oil & gas markets and a challenging Chinese economy remain headwinds. Also, the cyclical business is dependent on industrial and consumer spending and continues to be affected by macroeconomic industrial cycles both in the domestic and international markets. In addition, Regal Beloit’s earnings are susceptible to exchange rate volatility, which further undermines its growth potential.
The electric motor manufacturing industry is also highly competitive and fragmented. With the rise in competition within the industry, the company is witnessing a decline in its product prices, which in turn is detrimental to overall margins. The company has to continually invest in R&D to introduce newer value-added products that provide a hedge against competition. All these limit the company’s profitability to some extent.
Lydall is currently trading at a forward P/E of 19.9x.
AO Smith has a long-term earnings growth expectation of 10.7% and has beat estimates in all the trailing four quarters at an average of 5.9%.
Hitachi has long-term earnings growth expectation of 13% and has beat estimates twice in the trailing four quarters, the average earnings surprise being 145.6%.
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Regal Beloit (RBC) Poised for Growth Despite Headwinds
On Jan 16, we issued an updated research report on industrial goods manufacturer Regal Beloit Corporation (RBC - Free Report) .
Headquartered in Beloit, WI, Regal Beloit is a leading manufacturer of electrical and mechanical motion control products. The company offers a wide array of stock model and customized electric motors, blowers, electric generators, transfer switches, switchgear, valves, gearboxes, power generation components and controls. Regal Beloit has manufacturing, sales and service facilities throughout the U.S., Canada, Mexico, Europe and Asia. The company markets its products to a diversified customer base across the globe including OEMs, distributors and end users.
Regal Beloit has outperformed the Zacks categorized Manufacturing-Electronics industry in the last three months with an average return of 20.4% compared with 7.2% for the latter. Regal Beloit’s long-term growth strategy involves organic growth through product innovation, broadening of customer base, exploitation of new opportunities and tactical investments in emerging markets. Over the years, the company has consolidated its product lines and streamlined product brands to evolve as a dynamic enterprise. In order to drive continuous improvement, Regal Beloit follows ‘Compass Operating System’ that encompasses a common set of business processes, disciplines and lean Six Sigma tools. Backed by an “open-door” management style, the company has gained a competitive edge and reached customers in diverse markets around the world.
In addition, Regal Beloit continues to focus on investments for disciplined capital allocation, strong and flexible balance sheet position and cash flow enhancement to support dividend growth. We believe that such moves along with its robust operating platform and efficient management team will help in the execution of strategic priorities and drive net asset value. The company’s strong free cash generation is another positive, providing it an opportunity to pursue accretive acquisitions and unlock additional value. Going forward, Regal Beloit remains confident of generating robust operating cash flow to fund its organic and inorganic growth as well as to return significant capital to shareholders.
However, Regal Beloit faces increased concentration risks as a significant amount of its revenue is obtained from a handful of customers. The loss of any one of these customers could affect the company’s top line. Adverse foreign currency translation, soft oil & gas markets and a challenging Chinese economy remain headwinds. Also, the cyclical business is dependent on industrial and consumer spending and continues to be affected by macroeconomic industrial cycles both in the domestic and international markets. In addition, Regal Beloit’s earnings are susceptible to exchange rate volatility, which further undermines its growth potential.
The electric motor manufacturing industry is also highly competitive and fragmented. With the rise in competition within the industry, the company is witnessing a decline in its product prices, which in turn is detrimental to overall margins. The company has to continually invest in R&D to introduce newer value-added products that provide a hedge against competition. All these limit the company’s profitability to some extent.
Regal Beloit presently has a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Lydall, Inc. , AO Smith Corp. (AOS - Free Report) and Hitachi, Ltd. (HTHIY - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Lydall is currently trading at a forward P/E of 19.9x.
AO Smith has a long-term earnings growth expectation of 10.7% and has beat estimates in all the trailing four quarters at an average of 5.9%.
Hitachi has long-term earnings growth expectation of 13% and has beat estimates twice in the trailing four quarters, the average earnings surprise being 145.6%.
Zacks' Top Investment Ideas for Long-Term Profit
How would you like to see our best recommendations to help you find today’s most promising long-term stocks? Starting now, you can look inside our portfolios featuring stocks under $10, income stocks, value investments and more. These picks, which have double and triple-digit profit potential, are rarely available to the public. But you can see them now. Click here >>