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7 Reasons to Add Rockwell Automation to Your Portfolio Now


Shares of Rockwell Automation Inc. ROK, the original equipment manufacturer (OEM) of industrial automation equipment, application specific integrated software and consulting design services, have been performing well of late.

If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead. The Zacks Rank #1 (Strong Buy) stock has an estimated long-term earnings growth rate of 10.63%.

Estimates Northbound

Estimates for Rockwell Automation have moved up over the past 30 days, reflecting the optimistic outlook of analysts. The earnings estimate for third-quarter fiscal 2017, fiscal 2017 and 2018 have all gone up in the last 30 days.

For third-quarter fiscal 2017, the Zacks Consensus Estimate for earnings has gone up 5.8% over the past 30 days and is pegged at $1.64, depicting year-over-year growth of 5.8%. The estimate for fiscal 2017 climbed 5.9% to $6.64, reflecting 20% year-over-year growth. The Zacks Consensus Estimate for fiscal 2018 also moved north 6.3% to $7.27.

Positive Earnings Surprise History

Rockwell Automation outpaced the Zacks Consensus Estimate over the trailing four quarters, generating a positive average earnings surprise of 9.89%.

Ahead of the Industry

The company has outperformed the Zacks categorized Industrial Automation/Robotics sub-industry in the past one year. Shares have gained 29.1%, while the industry recorded growth of 29%.

Stock Seems Undervalued

Rockwell Automation has a trailing 12-month price earnings (P/E) ratio of 24.14, while the Zacks categorized sub-industry’s average trailing 12-month P/E ratio is 24.03. Based on this ratio, the stock seems undervalued.

Upbeat Q2

Rockwell Automation reported record second-quarter fiscal 2017 adjusted earnings per share of $1.55, up 13% from $1.37 earned in the prior-year quarter. Earnings also outpaced the Zacks Consensus Estimate of $1.40, registering a positive earnings surprise of 11%.

Hiked Guidance

Given the upbeat fiscal second-quarter performance, Rockwell Automation raised its fiscal 2017 sales growth guidance to the range of 4.5–7.5%. The company now anticipates adjusted EPS in the range of $6.45–$6.75 per share for the fiscal year.

Growth Drivers

Rockwell Automation’s new Connected Enterprise (CE) integrated supply chain management system will prove conducive to growth. The company is increasing the number of industries, applications and geographies, as well as improving its investments to expand the value of CE. With average profitability well above the corporate average, CE sales will be an integral part of Rockwell’s incremental growth and boost margins over the next few years.

Rockwell Automation continues to target long-term revenue growth of 6–8%. The company also maintains its objective of delivering 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 Rockwell Automation’s strategy of diversifying its sales streams by expanding products portfolio, solutions and services, as well as global presence.

The company also aims 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. Moreover, it will gain from increased investment, acquisitions and product launches.

Other Stocks to Consider

Other top-ranked stocks in the same sector are iRobot Corporation IRBT, Altra Industrial Motion Corp. AIMC and Parker-Hannifin Corporation PH. All the three stocks boast a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

iRobot Corporation has an average positive earnings surprise of 61.72% for the trailing four quarters. Altra Industrial Motion generated an average positive earnings surprise of 15.93% over the past four quarters, while Parker-Hannifin has an average positive earnings surprise of 14.94% for the last four quarters.

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