RBC Bearings' Organic Growth on Track - Analyst Blog

On Jul 7, 2014, we issued an updated research report on machinery company RBC Bearings Inc. ROLL. The company has been growing organically over the past few quarters, with strong growth momentum witnessed in the aerospace and defense product category. As the worldwide aircraft build rates improve, it is boosting the aircraft and defense products' revenues.

In addition, RBC Bearings experiences splendid inorganic growth. Acquisitions have contributed significantly in the recent past. The acquisitions of Turbine Components, Climax Metal and Western Precision, completed in Oct, Aug and Mar 2013, respectively, are expected to contribute roughly $25 million annually going forward. Further acquisitions also feature in the company's plans, if in sync with its strategies.

Moreover, RBC Bearings has been attempting to enhance shareholders' values. In Jun 2014, it paid a special dividend of $2.00 per share. In the near future, the company intends to use excess cash and earnings in the expansion and development of its existing business.

However, RBC Bearings' overdependence on a handful of customers increases the possibilities of a revenue decline in case the customers do not renew their contracts. At the same time, international operations of the company expose it to various geo-political as well as foreign currency exchange risks.

Additionally, steel being the main raw material for production of bearings, its prices play an important role in determining total costs. In situations of rising steel prices, it becomes difficult for the company to maintain the margins.

With a market capitalization of $1.5 billion, RBC Bearings holds a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Blount International Inc. BLT, EnPro Industries, Inc. NPO and Kennametal Inc. KMT. While Blount International and EnPro Industries sport a Zacks Rank #1 (Strong Buy), Kennametal holds a Zacks Rank #2 (Buy).