Fanuc Still Strong In Robots And Automation, But Trouble May Lie Ahead

I’ve never been quite as fond of Japan’s Fanuc (OTCPK:FANUY) (6954.T) as many readers seem to be, and over the last five years you could have done better with other automation names like Yaskawa (OTCPK:YASKY), Rockwell (ROK), Keyence (OTCPK:KYCCF), or HollySys (HOLI) (though the two-year comps are more forgiving to Fanuc). While Fanuc has done better than I’d expected over the last two years in terms of revenue growth, leveraging a strong rebound in machine tool and robomachinery orders, margins and FCF generation haven’t been all that impressive as business has skewed to lower-margin products.

Now there are macro clouds on the horizon. Weaker smartphone capex demands seem likely to pressure results in 2018 and we may be nearing the point of peak machine tool orders, setting the stage for what could be a nasty decline over the next few years. I do expect Fanuc to continue to see strong growth in robots and robotic components, but I’m just not excited about the valuation today given those challenges and potential risks.

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Fanuc Still Strong In Robots And Automation, But Trouble May Lie Ahead

Even As China Looks Toward Automation, FANUC Seems Pricey

Fanuc (OTCPK:FANUY) (6954) is a pretty remarkable company and a testament to the value of figuring out those things you do very well and then just doing those things. There are good reasons that Fanuc is the global leader in factory automation equipment like CNC systems, robots, and controlled machine tools. Likewise, operating margins in the 30%'s don't come by accident, nor do returns on capital consistently ahead of the cost of capital.

All of that said, I can't love the stock right now. Yes, I own ABB (NYSE:ABB) shares and I'm sure there will be aficionados of lead paint lollipops to accuse me of talking down Fanuc because that will somehow "help" ABB. But the fact remains that capex investment related to smartphones is still soft, China is increasingly looking to homegrown automation solutions, and even growth assumptions in excess of what I project for ABB aren't enough to drive a compelling fair value for this industrial technology company.

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Even As China Looks Toward Automation, FANUC Seems Pricey

Seeking Alpha: Can New Markets And New Machines Assemble More Value At KUKA?

Robots still have a bit of the "gee whiz" about them, even if they've been on site in automobile plants for almost 50 years now. KUKA AG (OTC:KUKAY) has built itself into the world's third-leading robot company, but still generates about half of its robot sales (and three-quarters of overall sales) from the automotive industry. KUKA could be undervalued here, but a large part of the company's incremental value rests on gaining share outside its core automotive end market and boosting its margins.

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Can New Markets And New Machines Assemble More Value At KUKA?