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Rockwell Automation's Growth Deceleration Triggers Goldman Sachs Downgrade

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Rockwell Automation's Growth Deceleration Triggers Goldman Sachs Downgrade

Rockwell Automation (NYSE: ROK) is scheduled to report third-quarter earnings July 25.

The Analyst

Goldman Sachs analyst Joe Ritchie downgraded Rockwell from Neutral to Sell and reduced the 12-month price target from $170 to $156.

The Thesis

While Ritchie said Rockwell Automation is one of the highest-quality franchises in his coverage, the analyst does not expect the stock to outperform going forward due to deceleration in its organic growth. (See the analyst's track record here.) 

The analyst forecast for Rockwell's organic growth to slow to 4.5 percent in 2019 and 3.8 percent in 2020. 

Three catalysts could have a negative impact on Rockwell's growth and EPS, Ritchie said: 

  • Capex growth in 2018 is at its highest level in six years.
  • The ISM Manufacturing Index is close to record highs.
  • Global auto capex is slowing, along with several key end markets.

These catalysts indicate a peak cycle that should have a negative impact on the stock's multiple, Ritchie said. Rather than 19 times calendar 2019 EPS, the analyst forecast 17.5 times calendar 2019 EPS.

Rockwell Automation is expensive relative to Goldman's coverage, Ritchie said. Now is not the best time to own the stock, as it tends to underperform as growth decelerates, he said.

"The best time to own Rockwell Automation has been when the cycle is accelerating." 

The Price Action

Rockwell Automation shares were down 2.01 percent at $167.63 at the close Monday. 

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Latest Ratings for ROK

DateFirmActionFromTo
Jan 2020Stephens & Co.MaintainsOverweight
Jan 2020BairdMaintainsNeutral
Jan 2020RosenblattInitiates Coverage OnNeutral

View More Analyst Ratings for ROK
View the Latest Analyst Ratings

Posted-In: Goldman Sachs Joe RitchieAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

 

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