A Member of Pat McKeough’s Inner Circle recently asked for his advice on a company that specializes in both industrial automation hardware and software.
Pat likes the company’s dominant position in its sector as well as its track record of rising revenues and earnings. Growth by acquisition adds risk, but so far the company has done well with its purchases.
Rockwell Automation Inc. (Symbol ROK on New York; www.rockwellautomation.com), provides industrial automation hardware and software products.
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The company has three operating segments: Intelligent Devices (47% of 2021 sales), Lifecycle Services (25%), and Software and Control (28%). It has more than 24,000 employees, with more than half of them outside the U.S.
On November 1, 2021, Rockwell announced that it had acquired Avata Inc., a Texas-based service provider of supply chain management, enterprise resource planning, and enterprise performance management solutions.
By combining its own Kalypso unit with Avata, Rockwell aims to help more companies digitally transform their supply chain management. The acquisition also lets the company expand its supply chain consulting services.
Rockwell’s revenue rose 10.9% between fiscal 2017 (years end September 30) and fiscal 2021, from $6.31 billion to $7.00 billion. Over the same period, per-share earnings rose 39.5%, from $6.76 to $9.43.
Inner Circle: Revenue and earnings up strongly for this industry leader
In its fiscal first quarter ended December 31, 2021, the company’s revenue increased 18.7%, to $1.86 billion from $1.57 billion a year earlier. Revenue was higher due to record orders for all three of Rockwell’s operating segments.
Excluding one-time items, the company earned $2.14 a share in the quarter. That was up 10.9% from $1.93.
Avata will complement Rockwell’s recent investments in cloud software. In August 2021, Rockwell completed the $2.2 billion acquisition of Plex Systems, a leading cloud-based smart manufacturing platform. Less than a year earlier, in December 2020, it completed the acquisition of Fiix Inc., a cloud software platform for scheduling, organizing, and tracking maintenance work.
The stock yields 1.8%.
There’s no question that businesses, in general, face a lot of challenges in this new year, with the labour shortage chief among them.
How soon supply and demand for labour will stabilize is unclear. More certain is that the shift to robotics is poised to accelerate even faster given ongoing advances in artificial intelligence and the complexity of tasks that robots can now perform. That’s a big plus for established leaders like Rockwell.
Recommendation in Pat’s Inner Circle: Rockwell Automation Inc. is a buy.
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