Rockwell Automation Looks Attractive Ahead of Earnings
Since reaching a 52-week high of $127.05 on June 11, shares of Rockwell Automation (ROK) - Get Report , one of the world's largest producers of industrial automation power, control and information solutions, have fallen by as much as 22%. With the stock now trading at around $109, Rockwell is down 2% on the year, 2015, including a 6% decline in just the past three months. But it's not because of poor execution.
Despite its under-performing stock price, which trails both S&P 500 (SPX) index and the Dow Jones Industrial Average (DJI) this year, the Milwaukee, Wis.-based company has beaten Wall Street's earnings per share estimates for four straight quarters. So, ahead of its fourth-quarter fiscal 2015 earnings results due out before the opening bell Tuesday, investors who are looking for a solid turnaround candidate should jump on this buying opportunity.
For the quarter that ended in September, the average analyst earnings estimate is for $1.79 a share on revenue of $1.68 billion, compared to the year-ago quarter, when Rockwell earned $1.86 a share on revenue of $1.78 billion. For the full year, earnings are projected to climb 7% to $6.61 a share, while revenue of $6.38 billion would mark a decline of almost 4%.
Owing to the strong U.S. dollar, which has devalued its overseas sales, revenue growth has been hard to come by for Rockwell. But the company is projected to deliver an average of 9% earnings growth annually over the next five years. Not only is that projected growth rate three percentage points higher than that of larger rival ABB Limited (ABB) - Get Report , it's almost twice the projected earnings growth rate of the S&P 500 index.
And here's the thing: Owing to its technological advantage over the likes of Honeywell (HON) - Get Report , Rockwell has almost doubled its profits in just the past four years. It would seem analysts have bought into the company's plans to double-down on its international presence and grow its industrial automation business overseas.
This means that while the strong U.S. dollar serves as a headwind for Rockwell today, that's unlikely to remain the case longer term, given the confidence implied by analysts' five-year projections. Combined with Rockwell's existing presence in industries such as energy, manufacturing and mining (among others), the company's stock price, which trades at a P/E that is five points below the S&P 500, looks well-positioned to recover in the quarters and years ahead. And its 2.50% annual dividend yield is a nice added bonus.
In short, although Rockwell's name may not pack the industrial punch of, say, General Electric (GE) - Get Report , the company is creating tons of value. And based on its average 12-month price target of $120 -- $11 and 10% higher than its Friday afternoon price around $109, the future looks profitable for investors who buy soon.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.