Seeking Alpha 7/17/07
TWST: What's your interest in Rockwell?
Mr. Tusa: Rockwell is another non-consensus call. We are one of only a few buy ratings here. The bear case on Rockwell is that it's deeply cyclical, tied to business investment. We agree that it is tied to the business investment cycle, but we just don't think it's as deeply cyclical as the Street assumes. Because of its high margins, high return on invested capital and high growth - three things that make up a pretty good high-quality company - it should really command a premier multiple to our group. There is an emerging software story that's going on here too that highlights how much higher tech this business is than just a run of the mill cyclical company. So we are betting that the market is being too aggressive in its discount for cyclicality here. Additionally, we do not think the business investment cycle is going away. We think it's actually going to be just fine for the next couple of years. In that kind of an environment, we think Rockwell can perform well.
TWST: What's it going to take to get investors convinced?
Mr. Tusa: Investors are already being convinced. The stock was at $58 about a month ago and it's now at $70. With every economic data point that we get, it appears as though the US economy is not that bad. In this steady state environment, Rockwell is going to put up some pretty nice numbers that are in excess of the Street. If they do that, we will start talking about the longer-term story and the software angle, which will be the key to driving further multiple expansion.
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