We have issued an updated research report on RBC Bearings Incorporated (ROLL - Free Report) on Jan 7.
This bearings manufacturer currently carries a Zacks Rank #4 (Sell). Its market capitalization is approximately $3.1 billion.
Let’s delve deeper and discuss what led to the company’s poor investment appeal.
Share Price Performances and Poor Valuation: Market sentiments have been against RBC Bearings for quite some time now. Its stock price has decreased roughly 16.8% in the past three months compared with the industry’s decline of 14.8%. The stock also underperformed the S&P 500’s decline of 12%.
The company’s stock appears overvalued compared with the industry. On a Price/Earnings (P/E) basis, the stock is currently trading at 28.5x, higher compared with the industry’s 18.1x. Further, the stock’s current valuation multiple is above the industry’s highest levels for the past three months of 20.4x.
Headwinds in the Aerospace Market: In the second quarter of fiscal 2019 (ended September 2018), RBC Bearings’ business in the aerospace market suffered from productivity softness in some manufacturing facilities. Supply-chain constraints including unfavorable contract timing, lack of engine availability and short-term aircraft build rates were a spoilsport in the second quarter. We believe that these persistent headwinds might continue to impact RBC Bearings' revenues in the quarters ahead.
Higher Costs and Expenses: While RBC Bearings’ costs of sales increased 2.6% year over year in the second quarter of fiscal 2019, its selling, general and administrative expenses improved 6.3%. We believe that inflation in material prices and higher personnel costs, if uncontrolled, can prove detrimental to the company’s margins and profitability.
In this regard, it is imperative to note that RBC Bearings has been grappling with higher costs of sales and operating expenses for quite some time. In the last five fiscal years (2014-2018), the company’s cost of sales increased 10.4% (CAGR) and total operating expenses grew 11.3% (CAGR).
Earnings Estimate Revisions: Over the past 60 days, RBC Bearings’ earnings estimates have been revised downward, making investors apprehensive about the company’s growth prospects. Currently, the Zacks Consensus Estimate for earnings is pegged at $1.14 for the third-quarter fiscal 2019 (ended December 2018; results not yet released), reflecting a decrease of 1.7% from the 60-day ago tally.
The earnings estimate stands at $4.83 for fiscal 2019 (ending March 2019) and at $5.43 for fiscal 2020 (ending March 2020), reflecting no change and a decrease of 0.2% from the respective tallies 60-days ago.
RBC Bearings Incorporated Price and Consensus