Stifel: We're Downgrading Rockwell, Cutting Estimates

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Stifel downgraded Rockwell Automation ROK Tuesday from Buy to Hold and estimated the stock’s fair value at $117.

Analysts led by Robert McCarthy felt that the strong North American short cycle industrial trends were “increasingly at risk given macro and company datapoints.”

“We have become increasingly concerned about N.A. short cycle industrial exposure particularly in light of recent weak sales trends out of the industrial distributors as well as a string of negative pre-announcements,” which included Pentair plc. Ordinary Share PNR and Dover Corp DOV, according to the analysts.

McCarthy added that FX was also acting as headwind on the company.

As a result of the cycle and headwinds, the firm cut FY 2015E top-line by 2.5 percent from down 0.6 percent to down 3 percent.

The analysts believed that “until investors get comfort that we are in a mid-cycle slowdown (subject to U.S. short cycle industrial reacceleration down the road) vs. a cyclical rollover, and top line and EPS cuts work their way through numbers due to Oil and Gas exposure, Rockwell’s near term EPS estimates and corresponding P/E multiple will be under significant near term pressure as the cycle debate rages.”

The analysts did not feel that things would become clear until the potentially positive impact of low oil prices was felt by U.S. consumers which would not be known until the second half of 2015.

 

For the fiscal Q2 2015 EPS, the analysts cut $0.09 out of the firm's estimate, lowering it from $1.49 to $1.40.

McCarthy reduced FY 2015E EPS from $6.65 to $6.45 and FY 2016E EPS from $7.10 to $6.90. The $117 fair value was based on Rockwell trading at 17x the FY2016E EPS.

Rockwell Automation recently traded at $111.73, up 0.40 percent.

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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsRobert McCarthyStifel
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