Rockwell Automation Is Automating Profits

Rockwell Automation Surges On Record Orders

Rockwell Automation NYSE: ROK is a favorite of ours because we believe in the power of automation the company’s ability to generate growth. The company provides industrial automation and digital transformation assistance in a world that is 1) accelerating the use of digital, IoT, and smart operations and 2) very short on able-bodied hands and looking to automate. This has the company set up well and it is evident in the results as well. While quarterly revenue ticked lower due to supply chain constraints the record number of orders belies the slowdown. If anything, investors should expect the company’s business to accelerate as the supply-chain kinks get worked out of the system and for capital returns to shareholders to flow. 

“2022 will be a breakout year for Rockwell, with sales expected to exceed $8B as component supply improves. Major new product introductions and recent acquisitions will fuel continued orders growth globally across all industry segments. I'm excited to see our great people bring our strategy to life,” said Blake Moret, chairman, and CEO, in the press release.

Rockwell Automation Moves Up On Mixed Results 

Rockwell Automation had a fantastic quarter in which growth exceeded the pre-pandemic levels but there is one caveat. While the revenue of $1.81 billion is up 15.1% over last year and 4.6% over 2019 it missed the consensus-estimated by 470 basis points but there is a mitigating factor. That factor is the record number of orders that grew 40% over last year to hit $2.2 billion. That alone is enough to ensure a very solid quarter of operations and the orders are still coming in. On an organic basis, growth topped 12.5% with 1.5% and 1.0% impact from FX and acquisitions.

“We made great strides in the quarter on a number of fronts, despite the continuing effects of COVID and supply chain shortages. Record orders were broad-based across all industries and businesses, and continued strategic investments including the Plex acquisition position us very well for the future,” continued Moret.

Among the highlights of the report is growth in ARR. The company’s ARR increased by 18% YOY and now accounts for more than 8.0% of the net. The margin was also strong in that it fell YOY but less than expected. The resumption of normal operations and rising costs were offset by revenue strength and should rebound over the next year. On the bottom line, the GAAP EPS of $0.67 fell short of the consensus but there is a mitigating factor here as well. The difference is non-cash impairment and had no impact on cash flow. The company’s adjusted EPS of $2.33 is up $0.46 over last year and beat the Marketbeat.com consensus by $0.15. 

Guidance Is Why Rockwell Automation Set A New High

Rockwell Automation is a highly valued stock trading at 35X its earnings but it continuously earns that valuation by growing earnings and guiding above expectations. The guidance for fiscal 2022 is not only good but comes in a range with the low-end well above the consensus estimate. The company is expecting 16% to 19% growth for the year and for EPS in the range of $10.50 to $11.10 compared to the Marketbeat.com consensus of $10.23. Shares of Rockwell Automation are up more than 6.0% following the FQ4 results and could easily go higher. In our view, this stock is headed up to the $370 level or about 9% of upside from the recent price action.