RBC Bearings Incorporated ROLL appears to have lost its sheen on difficult end-market conditions and other woes, which are predicted to adversely impact its profitability.
The Zacks Rank #4 (Sell) company, which has a market capitalization of $3 billion, has also failed to impress investors with its recent share price movement. In the past six months, the stock has lost 26.6% compared with the industry’s decline of 13.5%.
Let’s delve into the factors that have taken a toll on the firm.
Top-Line Woes: In third-quarter fiscal 2020 (ended Dec 28, 2019), RBC Bearings’ industrial sales recorded a decline of 11% year over year due to weakness in mining end markets. Notably, industrial sales for the company’s Plain Bearings segment were down 7%, while the same declined 15.1% for the Roller Bearings and 12% for the Engineered Products segments. We believe that the persistence of the woes might adversely impact the company’s revenues in the quarters ahead.
Escalating Cost Issues: RBC Bearings has been experiencing rising cost of sales over the past few quarters. For instance, the metric increased 5.4% and 2.9% in the fiscal second quarter (ended Sep 28, 2019) and the third quarter, respectively, on a year-over-year basis. It is worth mentioning here that in the last five fiscal years (2015-2019), the company’s cost of sales rose 9.2% year over year (CAGR). In addition, selling, general and administrative expenses rose 4.9% in the second quarter and 5.4% in the third quarter.
Estimate Trend: In the past 30 days, analysts have increasingly become bearish on the company, as evident from negative earnings estimate revisions. Notably, the Zacks Consensus Estimate for its fiscal 2020 earnings has trended down from $5.12 to $5.09 on two downward estimate revisions versus none upward. In addition, over the same timeframe, the consensus estimate for fiscal 2021 earnings has trended down from $5.57 to $5.13.
In addition, the stock currently looks overvalued compared with the industry on a P/E (TTM) basis, with respective tallies of 23.72x and 18.01x. Notably, the company's multiple is higher than the industry's six-month highest level of 22.87x.
Stocks to Consider
Some better-ranked stocks are Tennant Company TNC Broadwind Energy, Inc. BWEN and Griffon Corporation GFF. While Tennant currently sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Griffon carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Tennant delivered a positive earnings surprise of 26.60%, on average, in the trailing four quarters.
Broadwind Energy delivered a positive earnings surprise of 10.42%, on average, in the trailing four quarters.
Griffon delivered a positive earnings surprise of 20.34%, on average, in the trailing four quarters.
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