Regal Rexnord's FY23 Analyst Forecast: Anticipated Revenue Jump And Long-Term Profit Improvements Despite Short-Term HVAC Challenges

Oppenheimer analyst Christopher Glynn reiterated an Outperform rating on Regal Rexnord Corporation RRX with a price target of $190.

The analyst expects 2Q23 results to have an adjusted EPS of $2.40 (compared to the $2.46 consensus), with a little downside, given some incremental end demand caution by HVAC OEMs.

With the supply chain easing, Glynn expects a fairly buoyant free cash flow backdrop relative to guidance for at least $600 million.

Net leverage (including TTM Altra) was 4.3x exiting March (3.96x pro forma for $110M cost synergies within 24 months); it should track to 2.5x- leaving 2024, the analyst adds.

The analyst's bullish outlook reflects a positive view on long-term profit improvement with broadened share gain momentum and a strategic mix of management initiatives.

The analyst adds that the company guided for 2Q PES segment sales (~30% of RRX sales) down low-mid 20%s, anticipating severe pressure concentrated in residential HVAC and pool pumps.

Glynn expects adjusted EPS growth in 3Q and 4Q23 overall, with organic orders growth for 4Q23.

Based on the above, the analyst expects total segment revenues to jump 27% year on year to $6.63 billion in FY23. Adjusted EPS is expected to be down by 0.9% to $10.65.

Price Action: RRX shares are trading higher by 2.35% to $152.28 on the last check Friday.

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