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Regal Beloit Poised to Benefit from Core Business Focus

On Jul 10, we issued an updated research report on industrial goods manufacturer, Regal Beloit Corporation RBC.

Over the years, Regal Beloit has consolidated its product lines and streamlined brands to evolve as a dynamic enterprise. In order to drive continuous improvement, the company strictly followed ‘Compass Operating System’ that encompasses a common set of business processes, disciplines and lean Six Sigma tools. Backed by an “open-door” management style, this has helped Regal Beloit gain a competitive advantage and reach more people in diverse markets around the world.

In addition, the company has continually focused on prudent investment decisions for a disciplined capital allocation, strong and flexible balance sheet position and cash flow enhancement to support dividend growth. Regal Beloit recently increased its quarterly dividend by 8% year over year to 26 cents per share. We believe that such moves along with its robust operating platform and an efficient management team will help in the execution of its strategic priorities and drive net asset value in the future. The company’s strong free cash generation is another positive, providing it an opportunity to pursue accretive acquisitions and unlock additional value. Going forward, Regal Beloit remains confident of generating robust operating cash flow to fund its organic and inorganic growth as well as to return significant capital to shareholders.

With a diligent execution of operational plans, Regal Beloit has outperformed the Zacks categorized Machinery-Electrical industry with an average year-to-date return of 20.5% compared with an 11.8% gain for the latter. Its long-term strategy involves organic growth through innovative products, broadening customer base, exploitation of new opportunities and tactical investments in emerging markets. The company has also expanded technologically and geographically on the back of its aggressive acquisition policy. Management further indicated that it plans to continue seeking accretive acquisitions as part of its overall growth strategy.

However, Regal Beloit faces increased concentration risks as a significant amount of its revenues is obtained from a handful of customers. In addition, adverse foreign currency translation, soft oil & gas markets and a challenging Chinese economy remain headwinds. The cyclical business is further dependent on industrial and consumer spending and continues to be affected by macroeconomic industrial cycles both in domestic and international markets. Regal Beloit’s earnings are also susceptible to exchange rate volatility, which poses a concern.

Nevertheless, we remain impressed with the inherent growth potential of this Zacks Rank #2 (Buy) stock. Other stocks worth considering in the industry include Eaton Corporation plc ETN, Capstone Turbine Corporation CPST and A. O. Smith Corporation AOS, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Eaton has a long-term earnings growth expectation of 10%.  It topped estimates thrice in the trailing four quarters with an average positive earnings surprise of 3.3%.

Capstone Turbine has a long-term earnings growth expectation of 25%.

A. O. Smith has a long-term earnings growth expectation of 12.4%. It surpassed estimates in each of the trailing four quarters with an average positive earnings surprise of 4.9%.

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Capstone Turbine Corporation (CPST): Free Stock Analysis Report
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Regal Beloit Corporation (RBC): Free Stock Analysis Report
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