Rockwell Automation, Inc. (ROK - Free Report) is poised to gain from strength in heavy industries, growing investment and acquisitions despite softer automotive market and currency fluctuations.
Rockwell Automation has an impressive earnings surprise history. It outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering an average positive earnings surprise of 4.66%. It has an estimated long-term earnings growth rate of 8.10%.
The stock has gained around 8.8% year to date, outperforming the industry’s growth of 8.5%.
Below, we briefly discuss few other factors that make the stock worth holding on to.
Positive Growth Projections: The Zacks Consensus Estimate for earnings is currently pegged at $8.96 for fiscal 2019, reflecting year-over-year growth of 10.48%. For third-quarter fiscal 2019, the Zacks Consensus Estimate for earnings is pegged at $2.36, highlighting year-over-year growth of 9.26%. For fiscal 2020, the Zacks Consensus Estimate for earnings is currently pegged at $9.65, calling for year-over-year growth of 7.69%.
Return on Assets (ROA): Rockwell Automation currently has a ROA of 17.2%, while the industry's ROA is 16.6%. 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 73.8% reinforces its growth potential. The company’s ROE is higher than the ROE of 60.8% for the industry, highlighting its efficiency in utilizing shareholders’ funds.
Growth Drivers in Place
Strength in Heavy Industries Fuels Growth: Heavy industries performed well in second-quarter fiscal 2019, backed by strength in oil and gas, mining and pulp and paper. Growth in emerging markets will continue to trigger demand for semiconductor and other heavy industries.
Upbeat Guidance: For fiscal 2019, Rockwell Automation expects its adjusted EPS in the band of $8.85-$9.15, which calls for 14.6% year-over-year growth at the mid-point. It anticipates organic sales growth of 3.7-5.3%. 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 and develop products will stoke 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 its segment operating margin to expand to 22% in the current fiscal. Moreover, focus on productivity and actions to mitigate the impact of tariffs will likely be conducive to growth.
Investments & Acquisitions Provide Support: In fiscal 2018, Rockwell Automation made $1-billion equity investment in PTC. The company’s investment and alliance with PTC will accelerate growth for both companies. On Jan 28, 2019, Rockwell Automation announced the takeover of a U.K.-based software company, Emulate3D. This acquisition is in sync with the company’s growth strategy.
Further, later this February, Rockwell Automation entered into a joint venture (JV) agreement — Sensia — with Schlumberger. The transaction is expected to close in calendar-year 2019, subject to regulatory approvals and other customary conditions. The company is on track to deliver growth on PTC and the Sensia deal.
Moreover, Rockwell Automation is actively engaged in the evaluation of inorganic opportunities to accelerate the Connected Enterprise strategy. The company witnessed profitable growth across all regions, led by strong process industry performance in the fiscal second quarter. Growth in Information Solutions and Connected Services was witnessed, reflecting adoption of the Connected Enterprise.
Favorable Rank, Score Combination: Rockwell Automation currently carries a Zacks Rank #3 (Hold) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores.
Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, make solid investment choices.
Few Headwinds to Counter
Rockwell Automation expects tariffs to be a spoilsport for the company’s performance in the fiscal second quarter. The company expects prevailing softness in the automotive market to weigh on fiscal 2019 results. Moreover, the company’s performance will be hurt by currency fluctuations in the current fiscal.
Investors might want to hold on to the stock, at present, as it has ample prospects of outperforming peers in the near future.
Rockwell Automation, Inc. Price and Consensus
Stocks to Consider
A few better-ranked stocks in the Industrial Products sector are DMC Global Inc. (BOOM - Free Report) , Lawson Products, Inc. (LAWS - Free Report) and Roper Technologies, Inc. (ROP - Free Report) , each sporting a Zacks Rank #1, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
DMC Global has an estimated earnings growth rate of 79.7% for the ongoing year. The company’s shares have soared 65.3%, in the past year.
Lawson Products has an expected earnings growth rate of 24.5% for the current year. The stock has appreciated 58.9% in a year’s time.
Roper Technologies has a projected earnings growth rate of 7.9% for 2019. The company’s shares have gained 28.3%, over the past year.
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