Replies to post #396 on Rockwell Automation (ROK)

[Investorman]

Rockwell A Stealthy Commodity Play (ROK)
July 01, 2008 | by Gregory S. Davis

Rockwell Automation (NYSE:ROK) is a $5 billion-per-year leader in the field of control systems and process engineering for industrial manufactures. Rockwell's monitoring systems minimize energy losses and reduce mechanical breakdowns for large industrial operations like steel fabricators and petrochemical companies.

It's one of the many behind-the-scenes players that may benefit from the industrialization of emerging markets. With energy and commodity prices on the move, everyone is looking for what Rockwell is selling.

Commodity Spillover
Total sales increased 9% to $5 billion from the prior year led by its Control Products and Solutions segment. Rockwell has customers in commodity intensive businesses including food and beverage, oil and gas, mining, water and forest products. Higher commodity prices lead to more activity in 2007 from its customers who were eager to find ways to increase productivity while reducing operations costs.

Q2 Breakdown
Rockwell generated 46% of its revenues outside of the U.S. last year, closing in on its target of 50%. Revenue for its most recent fiscal year second quarter, ended March 31, increased nearly 17%. By region Europe, the Middle East and Africa made up the second largest slice of Rockwell's revenue with 24% of the $1.4 billion total.

Despite these upbeat numbers, Rockwell's stock has been on a downward trajectory from the $70 range at the end of last year to the $44 range in late June. The company recently reported weaker-than-expected sales from the U.S .and Europe for its upcoming end of third quarter fiscal year. (Examining how a company makes money can offer clues to its earnings potential. Learn more in Revenue Projections Show Profit Potential.)

International Environment
Rockwell uses GDP growth rates as a way to forecast future demand for its services. The company is expecting growth rates to moderate in fast growing markets including Brazil, India and China for the second half of the year. Slower growth rates are expected from developed markets including the U.S. and Europe. (From unemployment and inflation to government policy, learn what macroeconomics measures in our related article Macroeconomic Analysis.)

Competition
Key competitors include: Swiss-based ABB Ltd (NYSE:ABB), Germany's Siemens AG (NYSE:SI) and also Emerson Electric (NYSE:EMR) based out of Michigan. Value investors will be happy to note Rockwell's low price-to-earnings growth ratio of 0.77. ABB and Siemens also have PEG ratios below 1 at 0.81 and 0.78 respectively.

Conclusion
The fact that Rockwell has fallen out of favor could mean that analyst have priced in a pullback in energy prices or investors may just have a window of opportunity to act. For investors who understand Rockwell's technology and how it fits into the infrastructure theme, Rockwell may make an interesting addition to a portfolio. Even if energy prices do fall, its fair to say that manufacturers will always want to find systems providers like Rockwell that can limit costs and improve efficiency.



By Gregory S. Davis

Gregory S. Davis is an investment writer and consultant for his company G.Davis Capital Inc. His core methodology for choosing investments include patience, diversification and asset due diligence. Gregory is a graduate of the Wharton School of Business. He is also a board member of StoriesWork, a non-profit organization based in Durham, NC that uses storytelling to empower youth and individuals to utilize alternative dispute resolution tactics. At the time of writing Gregory S. Davis did not own share in any of the stocks mentioned.

[Investorman]

The Street.com
Rockwell Automation ROK

The primary factors that have impacted our rating are mixed with little evidence to justify the expectation of either a positive or negative performance for this stock. The Milwaukee-based company is a provider of industrial automation power, control and information solutions.

Rockwell Automation, reported revenue growth of 16.6% in its fiscal second quarter, boosted by organic growth of 6.7%, as well as a 6% contribution from foreign currency translation and 4% from acquisitions. Architecture and software sales grew 10.9% to $599 million, while control products and solutions sales climbed 21.2% to $807.6 million.

Higher cost of sales and operating expenses hurt Rockwell's margins. Gross profit margin declined 82 basis points to 42.27%, and operating margin decreased 81 basis points to 15.14%. Consequently, net income plummeted 80.4% to $142.8 million, as the company recorded income from discontinued operations of $3.80 a share in the same quarter in the prior year. However, Rockwell's EPS from continuing operations increased 47.7% to 96 cents from 65 cents.

A quick ratio of 1.18 reflects the company's healthy liquidity position. Return on equity surged 982 basis points to 33.54% from 23.72%, gaining from lower shareholder equity of $1.88 billion. Return on assets significantly dropped to 12.63% from 30.58%. The debt-to-equity ratio worsened to 0.65 from 0.35, as total debt increased 61.5% to $1.22 billion.

Rockwell Automation acquired Incuity Software, a privately held supplier of enterprise manufacturing intelligence software, which is expected to help in expanding its product suite and enhancing its plant-wide information strategy. Looking forward, Rockwell reaffirmed its full-year 2008 EPS guidance to be in the range of $4.25 to $4.45. Rockwell had been rated a buy since June 30, 2006.

[Investorman]

New ABB Boss Could Seal Some Deals
Lionel Laurent, 07.17.08, 8:35 AM ET

LONDON - Swiss power transmission company ABB is glad to have finally found a new chief executive in the form of General Electric's healthcare boss, Joseph Hogan. But news of his arrival also stirred up excitement over capital goods stocks on Thursday--with their attractive valuations, analysts think there could be deals in the pipeline.

"Joseph Hogan has a history of doing acquisitions," said James Stettler, analyst with Dresdner Kleinwort. He told Forbes.com that ABB's previous chief executive, Fred Kindle, had held off from big buys because valuations were not yet attractive. That story now seems to have changed.

Investors anticipating future deals pushed up shares in ABB's peers, during afternoon trading on Thursday. France's Schneider Electric jumped 6.3%, Legrand rose 7.6%, and Austria's Zumtobel was up 14.2%, in Frankfurt. ABB's own shares rose 3.8%, to 28.74 Swiss francs, in Zurich.

Dresdner Kleinwort's Stettler was doubtful that ABB would buy a company of Schneider Electric's size--it is worth over $27.0 billion--but Milwaukee, Wisc.-based Rockwell Automation might be an interesting target. The $6.3 billion firm would offer expansion in a specific area, robotics automation, that Hogan himself was historically involved in at General Electric.

A spokesman for ABB would not comment on any specific acquisition targets, but told Forbes.com that the company's acquisition strategy "could contain larger companies," as well as smaller firms. He added that ABB's chairman had given a tentative price range earlier this year of $500.0 million-$1.5 billion for acquisitions, and that the company had a total cash pile of $5.0 billion available.

ABB said it had settled on Hogan as its new chief executive on Thursday, five months after Fred Kindle stepped down over "irreconcilable differences on how to lead the company." (See "CEO Departure Leaves ABB In The Dark.") Analysts noted that another piece of good news was that Kindle's temporary replacement, chief financial officer Michel Demare, would stay on as CFO.

"I think it's good that Michel Demare, the CFO, remains with the company and in the same role," said Magnus Axen, analyst with Evli Bank. He said that investors would be looking for stability and continuity, rather than a spending spree that could prove difficult to integrate.

[Investorman]

If ROK were to be acquired by ABB that may not be a bad thing. ABB has had pretty good performance this year compared to US stocks. It is traded on the NYSE as an ADR.

ABB's stock price has gone up 500% since 2003.

[Investorman]

Earnings Preview: Rockwell Automation
by: theflyonthewall.com posted on: July 21, 2008

Guidance
Analysts are looking for EPS of 99c on revenue of $1.43B. The consensus range is 95c to $1.10 for EPS, and $1.39B to $1.45B for revenue, according to First Call. The company stated on a conference call at the JP Morgan Basics & Industrials on June 3, it expects strong sales growth for the remainder of the year. On June 25 Rockwell gave guidance for Q3 EPS, expecting EPS in the range of 93c to $1.00 vs. consensus of 99c, and stated it expects its FY08 EPS to be below its previous guidance of $4.25 to $4.45 vs. consensus of $4.04.

Analyst Views
On June 4, Friedman Billings stated it views the company as a compelling opportunity at current levels and believes the stock is trading as if a recession is imminent and operating income will decline sharply. The firm does not expect drastic declines in operating income to occur and find the risk/reward favorable at current levels and reiterated its Outperform rating.

Gabelli gave Rockwell Automation a Buy rating on July 3, and believes OEMs will be more likely to buy Rockwell's products as energy and commodity prices jump, since the companies will be looking to reduce costs by becoming more efficient. The firm thinks the decline in the company's stock price has made it potentially attractive to strategic buyers, and forecasts that it will increase its penetration of several markets.

[Investorman]

7:09AM Rockwell Automation beats by $0.06, beats on revs; guides FY08 EPS in-line (ROK) 43.63 : Reports Q3 (Jun) earnings of $1.03 per share, $0.06 better than the First Call consensus of $0.97; revenues rose 1051.8% year/year to $14.75 bln vs the $1.43 bln consensus. Co issues in-line guidance for FY08, sees EPS of $4.00-4.10 vs. $4.02 consensus. ""For the remainder of the fiscal year we expect to see continued strength in Asia-Pacific and Latin America as well as in resource-based industries. However, macro-economic conditions in Europe and the U.S. are weakening. We have begun to see a change in buying behavior by some of our customers in consumer related industries, including project delays and curtailed capital spending."

[Investorman]

Rockwell Automation, Inc.'s (NYSE: ROK - News) third quarter EPS of $1.03 declined 3.7% from the prior-year quarter, due to increased investment spending and slower than expected growth in the U.S. and Europe.

For the full year 2008, the management expects revenue growth of 9%-10% in FY08, led by continued strength in Asia-Pacific and Latin America as well as in resource-based end markets, flat to low, single-digit organic growth rates in the U.S. and mid-single-digit organic growth in EMEA [Europe, Middle East, Africa]. We recommend investors Hold shares of ROK in their portfolio.

The company has a strong embedded customer base. Hence, it is well positioned to capitalize on the continued strength in the industrial automation market, which is likely to continue witnessing high levels of capital spending.

Another positive factor is the growth in the Logix open hardware architecture platform. The company has also been generating strong free cash flow. In the first nine months of FY08, ROK repurchased around 4.3 million shares for $251.7 million. Further, the company spent around $60 million to repurchase 1.4 million shares in the beginning of the fourth quarter.

However, over the next few quarters, Rockwell's architecture & software business should face several headwinds. Life Sciences and Big Pharma are cutting back on spending in response to slower sales growth and patent expirations. The U.S automotive sector got hit with rapid gas price increases, which has forced the industry to shift away from large vehicles and trucks and close plants. This led to a halt in projects and in MRO replacement markets.