Rockwell Automation, Inc. (ROK - Free Report) has been witnessing upward revisions over the last 90 days. The Zacks Consensus Estimate moved up 2% to $6.75 for fiscal 2017 and 1% to $7.32 for fiscal 2018. A positive trend in estimate revisions reflects optimism over the company’s bright prospects.
Rockwell Automation currently carries a Zacks Rank #3 (Hold) with an impressive VGM Score of B. Here V stands for Value, G for Growth and M for Momentum. The score is a weighted combination of these three scores (Value - B, Growth - A, Momentum - B). Such a score allows you to eliminate the negative aspects of stocks and select winners. The VGM Score of B, along with some other key metrics, makes the company a solid choice for investors.
Rockwell Automation outpaced the Zacks Consensus Estimate in the trailing four quarters, delivering a positive average earnings surprise of 10%.
Its share price performance also remains impressive. In the past year, the company has outperformed the industry it belongs to. The stock has gained 52.4%, while the industry rose 49.1%.
Here’s what might drive the stock higher and why investors should hold on to the stock.
Return on Assets (ROA): Rockwell Automation currently has a ROA of 12%, while the industry's ROA is 11.7%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Return on equity (ROE): Rockwell Automation’s trailing 12-month ROE of 40.7% reinforces its growth potential. The company’s ROE is higher than ROE of 35.9% for the industry, reflecting the company’s tactical efficiency in using shareholders’ funds.
Positive Growth Projections: The Zacks Consensus Estimate for earnings for fiscal 2017 reflects a year-over-year growth of 13.89% and for fiscal 2018 projects growth of 8.35%.
Further, the company’s long-term earnings growth rate of 11.3% holds promise.
Growth Drivers in Place: Rockwell Automation’s new Connected Enterprise (CE) integrated supply chain management system will be a catalyst. The company is increasing the number of industries, applications and geographies, as well as improving investments to expand the value of CE. With average profitability well above the corporate average, CE sales will be an integral part of Rockwell Automation’s incremental growth and boost margins over the next few years.
Rockwell Automation’s strategy of diversifying sales streams by way of expanding products portfolio, solutions and services and global presence will help it deliver strong revenues and earnings growth in the long term. The company also aims to achieve growth rates in excess of the automation market by expanding served market, strengthening competitive differentiation, and serving a wider range of industries and applications.
Rockwell Automation’s objectives also include market share growth by gaining customers and capturing a larger share of existing customer spending, improving quality and customer experience, as well as enhancing market access by building channel capacity and partner network.
Investors might want to hold on to the stock at present as it has ample prospects for outperforming peers in the near future.
Stocks to Consider
Some better-ranked stocks in the same sector include China National Materials Company Limited , Alarm.Com Holdings, Inc. (ALRM - Free Report) and Komatsu Ltd. (KMTUY - Free Report) . All three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
China National Materials has an expected long-term earnings growth rate of 20%.
Alarm.Com Holdings has an expected long-term earnings growth rate of 16.7%.
Komatsu has an expected long-term earnings growth rate of 12.7%.
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