On Sep 19, 2014, we issued an updated research report on machinery company RBC Bearings Inc. (ROLL). The company is one of the fastest growing machinery companies, manufacturing and distributing plain, roller and ball bearings for industrial as well as aerospace and defense end markets.
In fiscal first-quarter 2015 (ended Jun 2014), the operating environment for the U.S. machinery industry was quite favorable. Industrial production increased 5.5% year over year, including a 6.7% hike in manufacturing production and an 18.8% increase in mining production.
RBC Bearings benefited from an increased product demand in mining, oil and gas, and general industrial markets. Also, higher commercial aircraft build rates boosted aerospace and defense products’ revenues. In the quarters ahead, a solid product line will enable the company to capitalize on the rising demand in these end markets. Moreover, its international operations will be a growth booster.
In addition to organic growth, RBC Bearings’ inorganic expansion, especially via acquisitions, has been splendid over the past few years. The acquisitions of Turbine Components and Climax Metal, for approximately $17.6 million, are expected to contribute roughly $25 million annually going ahead. The company also plans further acquisitions, if in sync with its strategies.
However, RBC Bearings’ overdependence on a handful of customers increases the possibilities of a revenue decline in case the contracts are not renewed. At the same time, international operations of the company expose it to various geo-political as well as foreign currency exchange risks. Additionally, steel being the main raw material for production of bearings, its prices play an important role in determining total costs.
The Zacks Consensus Estimate of RBC Bearings is pegged at $3.03 for fiscal 2015 and $3.50 for fiscal 2016. These estimates represent year-over-year growth of 17.3% and 15.7% respectively.
With a market capitalization of $1.4 billion, RBC Bearings carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Metso Corporation (MXCYY), IDEX Corporation (IEX) and Middleby Corp. (MIDD). While Metso Corporation sports a Zacks Rank #1 (Strong Buy), both IDEX Corporation and Middleby hold a Zacks Rank #2 (Buy).
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