This post was originally published on this site
Barclays analysts lowered their rating on the stock to Underweight from Equal Weight and cut their price target 4%, to $287 from $300. The new price target implies 9.5% downside from Tuesday’s closing price.
“ROK has attractive end-market exposures and an un-levered balance sheet, but the stock has performed strongly (+20% YTD vs S&P +15%), it has received a couple of recent sell-side upgrades, and we think its valuation is quite rich (3% ’23 FCF yield),” the analysts commented. “We think these high expectations may be difficult to meet, amidst a re-Balance lower of factory automation orders and sales over the NTM.
The analysts now see a factory automation (FA) “tipping-point.” In the past 18 months, various MI end markets have sequentially declined after a strong growth phase, leading to inventory surplus due to reduced lead times, the analysts note. Rockwell Automation’s sales outperformed the MI average by 500 basis points in the last six quarters (compared to no outgrowth pre-Covid). The FA sector seems to have reached a ‘tipping point’ amid improved chip supply. “There may be some US ‘shoring’ tailwinds for FA, but there is scant evidence of this (per machine tool/robot demand data, or FA sales growth, for example) thus far beyond the headlines, 6 years on from tariffs,” the analysts commented. Over the last 15 years, they consider China to have been the primary catalyst behind substantial global growth in FA. However, it appears that this growth trajectory is poised to decelerate due to various factors such as demographic changes, geopolitical shifts, and a high level of automation penetration.
With Resi tipping over first and then Short Cycle Industrial/Industrial opex, they now expect Industrial capex to soften next even as Resi bottoms and rebounds.
“We think ROK sales trends will move from out-growth vs MI to in-line in 2024,” the analysts added.
Shares of ROK are up 21% year-to-date.
