On Jun 29, 2015, we issued an updated research report on Rockwell Automation, Inc. ROK. We believe diversification of sales streams, quality improvement, building partner network, growth in automation and acquisitions will prove to be growth drivers for this provider of industrial automation power. However, control and information solutions, a stronger U.S. dollar, a weak mining environment and lower oil prices remain headwinds.
Notably, Rockwell Automation has maintained its long-term financial goal of 6% to 8% revenue growth. The company also aims to deliver double-digit EPS growth, return on invested capital (ROIC) of more than 20% over the long term and cash flow of around 100% of adjusted income. These long-term goals will be supported by expansion of product portfolio, solutions and services as well as global presence.
Moreover, the company hopes to achieve growth rates in excess of the automation market by expanding its served market, strengthening competitive differentiation and serving a wider range of industries and applications. Rockwell Automation’s objectives also include growing market share by attracting new customers and capturing a larger share of existing customer spending, improving quality and customer experience as well as enhancing market access by building channel capacity and partner network.
Rockwell Automation will benefit from expansion in the emerging markets and opportunistic acquisitions. From a geographic standpoint, Latin America continues to be the fastest growing region in the first half of the fiscal 2015, with double-digit organic growth. The company expects Latin America to remain its highest growing region throughout the year.
Based on soft forecasts for industrial production growth, oil and gas, and the company’s solutions and services backlog entering the second half, Rockwell Automation has lowered its full-year organic growth forecast. Also, including a larger currency headwind, the company now expects fiscal 2015 sales of about $6.4 billion, down from the prior outlook of $6.6 billion. The company, however, has maintained its adjusted EPS guidance range of $6.50 to $6.80. Negative impact from currency translation is expected to reduce full year sales by 6% and EPS by about 40 cents.
Lower oil and gas prices will continue to weigh on Rockwell Automation’s results through the rest of 2015. The global mining industry has been noticeably sluggish due to oversupply and weak commodity prices, particularly in China and Australia.
In the Control Products and Solutions segment, the company continues to experience weakness in the Solutions and Services businesses, with organic sales down about 2%. The book-to-bill ratio for Solutions and Services of 1.06 in the second quarter was lower than expected. Consequently, the company reduced its growth expectation for Solutions and Services in the second half. The order shortfall in Solutions and Services was primarily in heavy industry, with about half of that coming in oil and gas.
The Zacks Consensus Estimate for 2015 increased 0.2% to $6.61 per share, while for fiscal 2016 it decreased 0.3% to $7.05 per share. Rockwell Automation carries a Zacks Rank #3 (Hold).
Stocks That Warrant a Look
Some better-ranked stocks in the same industry are Advanced Emissions Solutions, Inc. ADES, Albany International Corp. AIN and Apogee Enterprises, Inc. APOG. While Advanced Emissions sports a Zacks Rank #1 (Strong Buy), Albany and Apogee carry a Zacks Rank #2 (Buy).
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