Rockwell Downgraded At BofA, 'Weak Cycle' Of Concern To Analysts

• Rockwell Automation ROK shares have been volatile in 2015 and are down 4 percent year-to-date.
• BofA Merrill Lynch’s Andrew Obin downgraded the rating on the company from Neutral to Underperform, while maintaining a price objective of $110.
• A weak macroeconomic environment is expected to restrict the company’s future organic growth, Obin pointed out.

Analyst Andrew Obin mentioned that Rockwell Automation’s future performance and organic growth are likely to be negatively impacted by ongoing weakness in the macroeconomic environment.

“We believe ROK to be a high quality company led by a capable management team, but think that the macro headwinds will result in earnings that are much lower than the consensus,” Obin stated.

Deterioration in global industrial demand is expected to exert pressure on the company’s ability to generate organic growth in the near term. Rockwell Automation has high exposure to heavy industrial end markets, like mining, metals, paper & pulp and O&G.

“ROK’s FY15 organic growth outlook (+2%) will likely be a stretch in FY16 given sluggish oil & gas spending, slowing China trends, and only modest US IP growth,” the BofA Merrill Lynch report mentioned.

Obin believes that Rockwell Automation’s pure play focus makes it an appealing candidate for the consolidation in the automation market. He added, however, that a deal is unlikely in the near term, given the deteriorating end market fundamentals.