As a dominant player in the industrial automation industry, Rockwell Automation should benefit enormously from the accelerating trend of industrial automation.
Rockwell Automation's growing international presence should help propel growth, especially with the rise in demand from emerging markets like Latin America.
The company's architecture/software and control products/solutions segments should continue to experience robust growth in light of the company's growing demand and improving financials.While Rockwell Automation will likely experience some headwinds from the resource-based industries, the company's long-term growth prospects remain stronger than ever.
Rockwell Automation (NYSE:ROK) is a leader in the highly promising industrial automation and information solutions industries. The company's industrial automation business in particular has a huge amount of promise, and has contributed enormously to the company's outperformance over the past decade. With the accelerating rate of industrial automation technology adoption in recent years, Rockwell Automation is set to continue its impressive growth.
Rockwell Automation has experienced robust sales and profit growth in recent years, nearly doubling its net income over the past four years. Not only does Rockwell Automation continue to have a technological edge in terms of industrial automation technologies and services, but the company is also starting to grow its presence on the international scene. With a large foothold in huge industries such as manufacturing, mining, energy, etc, the company has long-term staying power.
Dominant Industry Player
Rockwell Automation currently operates in architecture/software control and control products/solutions. The company is a dominant player in both these industries, as is evident in its Q2 revenues of $674M and $877M respectively. The architecture/software business, which includes Rockwell Automation's control/information platforms, automation components, and software applications, has been one of the company's key business segments.
In fact, this segment led the company's Q2 organic growth of 2.7%, and is expected to continue showing strength in the long-term. As customers' appetite for information services/solutions and automation components is only growing in light of the increasingly complex/automated industrial environment, Rockwell Automation's architecture/software control business should continue to outperform. The plethora of solutions offered by Rockwell Automation, such as information solutions and integration services, will become increasingly relevant as automation grows in importance.
While Rockwell Automation's control products and solutions business has seen a noticeable YOY downturn, this segment should also experience higher-than-average growth in the long-term. This business segment, which includes things such as intelligent motor control, would also benefit tremendously from the increasing trend of industry automation, giving control products/solutions an even greater role in manufacturing. Despite this segments YOY sales decline of 4.1%, this segment should growing considerably moving forward.
Along with notable product lines such as the Allen-Bradley, Rockwell Automation also offers a multitude of information services to help increase industry productivity. Here is a picture of one of the company's new Allen-Bradley PowerFlex 527 AC product, which is used to reduce machine complexity.
Strong International Presence
While the majority of Rockwell Automation's business is still located in the US, the company is noticeably growing its presence on the international markets. The emerging markets in particular have shown tremendous promise for the company, with its Latin American business experiencing organic growth of 12.8%. This figure far eclipses the company's business in other regions, which experienced growth figures in the low single digit percentages.
Despite some major industry headwinds in the oil/gas industry, which accounts for a sizable fraction of Rockwell Automation's business, the company continues to grow its profits. As the company's Q2 YOY growth of 2.7% was brought down significantly by resource-based volatility, most notable in its Canada business decreasing by a whopping 10.8% in Q2 on a YOY basis, the company's growth rate should rise significantly as the resource markets calm down.
As industry on the global stage continues to grow rapidly, a larger percentage of Rockwell Automation's business will likely shift overseas. With the Asia Pacific and Latin America regions in particular expected to rise dramatically in GDP, Rockwell Automation has plenty of opportunities on the international front. Although near-term demand in the Asia Pacific region may be held back slightly due to a slowdown of business in China, this region should show increasing promise with time.
While Rockwell Automation's revenues have grown marginally over the past few years, its profitability has seen a sharp increase. With a net income growth rate that has exceeded that of its sales, the company has clearly seen some notable improvements on the financial front. Rockwell Automation's operating margins have been a main driving force behind the company's improving profitability. The company's main business segments have seen an increase in operating margins both on a YOY and YTD basis.
For Rockwell Automation's architecture/software business, the company's YOY and YTD operating margins improved by 210 and 140 basis points respectively. The company's control products/solutions front has been even more impressive, with a YOY and YTD improvement of 300 and 220 basis points respectively. With a 2015 fiscal year sales guidance of around $6.4B, the company remains near all-time highs. As Rockwell Automation's margins will likely continue to improve given the demand trend for automation technologies and information solutions, the company still has much more room to grow.
Resource-based business have not fared well recently, with commodities like oil and gas experiencing tremendous industry pressures. As a large percentage of Rockwell Automation's customers are in resource-based businesses, the company itself should also experience some growth troubles in these arenas. Despite this, Rockwell Automation's increasingly diversified business should help blunt the impact of the near-term headwinds in resource-based businesses.
With industrial automation starting to gain some serious traction, Rockwell Automation is set to gain tremendously. At a market capitalization of $16.65B and a P/E ratio of 20, Rockwell Automation is already one of the most valuable companies in this space. Despite its impressive valuation, the company still has more room to grow given the rapid progress being made on the automation front. As industry becomes more complex as a result of automation, the company's information services should also experience increasing demand. Rockwell Automation's surge over the past decade will likely continue, making this company a solid investment.