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Rockwell Automation Rides on Acquisitions Amid Tariff Woes

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On Nov 13, we issued an updated research report on Rockwell Automation, Inc. (ROK - Free Report) . The company’s performance will be backed by strength in heavy industries, favorable manufacturing environment and acquisitions. However, its results might be marred by concerns in Europe and the impact of tariffs.

Let’s illustrate these factors in detail.

Rockwell Automation to Gain from Strength in Heavy Industries

Heavy industries performed well in fourth-quarter fiscal 2018, led by semiconductors, metals and chemicals.Rockwell Automation expects heavy industries to be the primary growth driver, followed by the consumer vertical.

Favorable Manufacturing Environment to Drive Growth

Global manufacturing environment remains favorable and macroeconomic indicators are positive. PMI (Purchasing Managers' Index) remained above 50 so far this year, indicating a continued expansion in the U.S. manufacturing economy. Further, the Architecture Billings Index (ABI) remained above 50, which reflects improving business conditions. Global industrial capital spending is on the rise and may be act as a tailwind in fiscal 2018.

Acquisitions Support Rockwell Automation

In fiscal 2018, Rockwell Automation made several investments, including a$1-billion equity investment in PTC. PTC is the leader in the Industrial Internet of Things and augmented reality. Its investment and alliance with PTC will accelerate growth for both companies. Notably, the action will help Rockwell Automation’s customers to transform their physical operations to digital technology. The company is also actively engaged in the evaluation of inorganic opportunities to accelerate the Connected Enterprise strategy.

Tariffs Remain a Woe

Rockwell Automation expects to offset the negative impact of tariffs through the implementation of supply-chain alternatives, negotiations with vendors and price adjustments on effective products. Nevertheless, the company expects that tariffs will have an unfavorable impact in first-quarter fiscal 2019 due to timing of these selective price increases.

Concerns in Europe

Rockwell Automation’s European operations will be hampered due to slowdown in export growth and escalating oil prices.

Share Price Performance

In a year’s time, Rockwell Automation has underperformed its industry. Shares of the company have lost 11% compared with the industry’s 12% decline.



 

Zacks Rank & Key Picks

Rockwell Automation carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the same sector include CECO Environmental Corp. , RBC Bearings Incorporated and Mobile Mini, Inc. . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

CECO has a long-term earnings growth rate of 15%. The stock has surged around 61% in a year’s time.

RBC Bearings has a long-term earnings growth rate of 5.9%. The company’s shares have been up 28% during the past year.

Mobile Mini has a long-term earnings growth rate of 14%. Its shares have rallied 23% in the past year.

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