Rexnord (RXN) is still a more complicated than average story, as a big piece of the value here rests on the value of the stake Rexnord shareholders will get in Regal Beloit (RBC) upon completion of the merger of Rexnord’s Process & Motion Control (or PMC) business with RBC in a Reverse Morris transaction. Even with those uncertainties, though, Rexnord is still leveraged to a broad industrial recovery, as well as stronger-than-expected retrofit activity in non-residential that has helped offset weaker new-build activity.
These shares have done well since my bullish late March write-up, beating the broader industrial space by almost 15% and the S&P 500 by close to 10%, but a lot of that outperformance has admittedly come since second quarter earnings.
There are still quite a few moving parts to the valuation, including future multiples for Regal Beloit (particularly in light of the recent transaction between ABB (ABB) and RBC Bearings (ROLL) for ABB’s Dodge business), non-residential project development, and post-transaction corporate costs for Rexnord (which impacts margins and valuation). At this point I still lean favorably towards Rexnord, but I don’t think it’s still the clear bargain it had been in some of my prior articles.
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