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Here's Why You Should Hold on to Rockwell Automation for Now

Zacks Equity Research

Rockwell Automation, Inc. ROK is poised to achieve above-market growth driven by share gains in core platforms, and double-digit growth in Information Solutions and Connected Services. Acquisitions and inorganic investments are also tailwinds.

Rockwell Automation currently has 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. 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.

Below, we briefly discuss few other factors that make the stock worth holding on to.

Positive Earnings Surprise History: Rockwell Automation has outpaced the Zacks Consensus Estimate in three of the trailing four quarters by 4.45%, on average. It has an estimated long-term earnings growth rate of 8.17%.

Rockwell Automation, Inc. Price and EPS Surprise


Rockwell Automation, Inc. Price and EPS Surprise

Rockwell Automation, Inc. price-eps-surprise | Rockwell Automation, Inc. Quote

Positive Growth Projections: The Zacks Consensus Estimate for earnings is currently pegged at $8.78 for fiscal 2020, suggesting growth of 1.27% from prior-year quarter. For fiscal 2021, the Zacks Consensus Estimate for earnings stands at $9.33, indicating an improvement of 6.23% from the year-ago reported figure.

Return on Assets (ROA): Rockwell Automation currently has a ROA of 16.9%, while the industry's ROA is 16.2%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.

Return on Equity (ROE): The company’s trailing 12-month ROE of 99.3% reinforces its growth potential. The company’s ROE is higher than the ROE of 68.1% for the industry, highlighting its efficiency in utilizing shareholders’ funds.

An Outperformer: The stock has gained 13.8% year to date, outperforming the industry’s growth of 3.7%.

Upbeat Guidance: For fiscal 2020, Rockwell Automation expects adjusted EPS in the band of $8.70-$9.10. The mid-point of the guidance range indicates year-over-year growth of 3%. Reported sales growth is expected in the range of 2-5%. Sales for fiscal 2020 are anticipated at around $7 billion. Rockwell Automation expects segment operating margin at 21.5% in fiscal 2020. The Hybrid industries are expected to be up in low single-digits driven by growth in Life Sciences, Food & beverage, and Tire markets.

Growth Drivers in Place

The company is poised to benefit from focus on expanding portfolio of hardware and software products, solutions and services. Further, significant investments to globalize manufacturing and develop products will fuel growth.

The company is likely to witness above-market growth driven by share gains in core platforms and double-digit growth in Information Solutions and Connected Services. Moreover, focus on productivity and actions to mitigate the impact of tariffs are likely to drive growth.

In October, Rockwell Automation acquired MESTECH Services. The acquisition enhances the company’s capabilities to profitably grow Information Solutions and Connected Services globally and enhance its ability to help customers execute digital transformation initiatives. Rockwell Automation will be able to leverage MESTECH’s presence in India, which is one of its growing markets.

In January 2019, the company acquired Emulate3D, an innovative engineering software developer whose products digitally simulate and emulate industrial automation systems. In 2018, the company acquired PTC, which is a leader in the Industrial Internet of Things and augmented reality. The company’s acquisition pipeline remains robust.

Rockwell Automation has entered into a joint venture (JV) agreement with Schlumberger to form Sensia — the first fully integrated digital oilfield automation solutions provider. Sensia will operate as an independent entity, with Rockwell Automation owning 53% and Schlumberger owning the balance. Sensia is expected to generate initial annual revenues of approximately $400 million.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Sharps Compliance Corp SMED. All of these stocks carry a Zacks Rank #1, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Northwest Pipe has an expected earnings growth rate of 15.5% for the current year. The stock has appreciated 47% in a year’s time.

Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 28% over the past year.

Sharps Compliance has an estimated earnings growth rate of 500% for the ongoing year. The company’s shares have gained 18% in the past year.

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