Maybe it’s premature, but it finally looks as though the rerating I had been expecting in the industrial sector is finally happening (and no, I’m not saying I was early, I’m saying I was wrong). Rockwell (ROK) is one of the names seeing that, with the shares underperforming the industrial group by around 10%, while the wider industrial group itself has modestly lagged the S&P 500 since my last update on Rockwell.
This is going to be a really interesting year to watch at Rockwell. The Street expects a lot of short-cycle industrial end-markets to start decelerating over the next few quarters, but there are some secular drivers at Rockwell that could offset that. By the same token, expectations are high and management seems to be guiding to a near-term order peak. Against a still-high valuation, that’s a challenging set-up.
My issues with valuation are the biggest concern with Rockwell. Companies like Siemens (OTCPK:SIEGY), Schneider (OTCPK:SBGSY), Emerson (EMR), ABB (ABB) and others are going to be meaningful competitors for years to come, but I like a lot of the strategic moves Rockwell has made. I don’t really expect to see Rockwell become a “value stock” unless something goes grievously wrong, but I do think this pullback is worth watching if you’ve been thinking about Rockwell but are concerned about valuation.
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