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Regal Beloit Bets on Buyouts & Restructuring to Fuel Growth


On Sep 19, 2016, Zacks Investment Research upgraded Regal Beloit Corporation RBC to a Zacks Rank #3 (Hold).

Headquartered in Beloit, WI, Regal Beloit is a leading manufacturer of electrical and mechanical motion control products. The company offers a wide array of stock model and customized electric motors, blowers, electric generators, transfer switches, switchgear, valves, gearboxes, power generation components and controls. Regal Beloit has manufacturing, sales and service facilities throughout the U.S., Canada, Mexico, Europe and Asia. The company has a diversified customer base across the globe including OEMs, distributors and end users.

Macroeconomic Factors

Regal Beloit’s long-term growth strategy involves organic growth through innovation of new products, broadening of customer base, exploitation of new opportunities and tactical investments in emerging markets. Over the years, the company has consolidated its product lines and streamlined product brands to evolve as a dynamic enterprise. In order to drive continuous improvement, Regal Beloit follows ‘Compass Operating System’ that encompasses a common set of business processes, disciplines and lean Six Sigma tools. Backed by an “open-door” management style, this has helped the company to gain a competitive advantage and reach more people in diverse markets around the world.

The company has expanded technologically and geographically on the back of its aggressive acquisition policy. The management has further indicated its plan to continue seeking accretive acquisitions as part of its overall growth strategy. The acquisition of Benshaw Inc., on Jul 1, 2014, expanded Regal Beloit’s portfolio of customized electronic drives and controls. In addition, on Dec 15, 2014, the company made a strategic purchase of the Power Transmission Solutions business of Emerson Electric Co. which has further broadened its product portfolio, diversified end-market exposure and strengthened global footprint with complementary products and well-known brands. Subsequent to the acquisition, Regal Beloit has reorganized its segments to improve transparency, simplify external communication with clients and align segment reporting with the new management structure. All these efforts augur well for the long-term growth of the company.

However, Regal Beloit’s second-quarter results were severely impacted by the fragilities in the oil & gas sector and the overall industrial end markets. The company expects its sales to be affected by the continued weakness in industrial markets. Consequently, the company revised its guidance for 2016 and anticipates adjusted earnings per share to be in the range of $4.35 to $4.55, down from the earlier projection of $4.40 to $4.80.

REGAL BELOIT Price and Consensus

REGAL BELOIT Price and Consensus | REGAL BELOIT Quote

Electric motor manufacturing is a highly competitive and fragmented industry. With intensifying competition, Regal Beloit is witnessing a decline in its product prices, which is denting its overall margin. Moreover, the company has to continually invest heavily in R&D to introduce newer value-added products to cushion itself from competition. All these limit the company’s profitability to some extent. Regal Beloit also faces increased concentration risks as a significant amount of its revenue is obtained from a handful of customers. Loss of any of these customers could adversely impact the company’s top line.

Some better-ranked stocks in the same space include AO Smith Corp. AOS, Schneider Electric SE SBGSY and EnerSys ENS, each carrying a Zacks Rank #2 (Buy) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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