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Rockwell Automation Banks on Investments & Acquisitions

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On Feb 26, we issued an updated research report on Rockwell Automation, Inc. (ROK - Free Report) . The company’s performance is likely to be backed by strength in heavy industries and acquisitions in the days ahead. However, its results might be marred by concerns in Europe and tariffs.

Let’s illustrate these factors in detail.

Set to Gain From Strength in Heavy Industries

Heavy industries performed well in first-quarter fiscal 2019, thanks to strength in mining, open paper and metals. In addition, growth in emerging markets and growth of the middle class will create demand for semiconductor and other heavy industries.

For fiscal 2019, Rockwell Automation maintained adjusted EPS guidance at $8.85-$9.25, which represents 12% year-over-year growth at the mid-point. It anticipates organic sales growth of 3.7-6.7%. The company is poised to benefit from its focus on broadening the portfolio of hardware and software products, solutions and services. Further, significant investments to globalize manufacturing, develop products will drive growth. The company is likely to witness above-market growth through a combination of share gains in core platforms, double-digit growth in Information Solutions and Connected Services as well as contribution from acquisitions and inorganic investments. Rockwell Automation also expects segment operating margin to expand to 22% in fiscal 2019. Moreover, focus on productivity and actions to mitigate the impact of tariffs are expected to drive growth.

Acquisitions Lend Support

In fiscal 2018, Rockwell Automation made several investments, including a $1-billion equity investment in PTC. Notably, PTC is the leader in the Industrial Internet of Things and augmented reality. Its investment and alliance with PTC will accelerate growth for both the companies. On Jan 28, the company announced the takeover of a U.K.-based software company, Emulate3D. The acquisition is in sync with the company’s growth strategy. Moreover, 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 tariffs to have an unfavorable impact in second-quarter fiscal 2019 due to the timing of selective price increases.

Concerns in Europe

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

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector are Axon Enterprise, Inc (AAXN - Free Report) , Alarm.com Holdings, Inc. (ALRM - Free Report) and Albany International Corp. (AIN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon has an expected earnings growth rate of 14.5% for 2019.
 
Alarm.com has an expected earnings growth rate of 7.8% for 2019.
 
Albany International has an expected earnings growth rate of 44.7% for 2019.
 
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