The recent resurgence of manufacturing in the United States, fueled by the CHIPS Act, the Inflation Reduction Act, and the Infrastructure Investment and Jobs Act, has brought forth both opportunities and challenges for businesses in the stock market.
On Wednesday, Rockwell Automation (ticker: ROK), a leading manufacturing automation company, faced a downgrade from Sell to Hold by Barclays analyst Julian Mitchell. He adjusted his target for the stock price from $300 to $287.
Rockwell Automation plays a critical role in the manufacturing industry by supplying equipment that powers plants across various sectors, ranging from food production to automotive manufacturing. The company has witnessed a surge in orders and an increase in its backlog of work due to major manufacturers like Intel (INTC) and Ford Motor (F) expanding their plant operations.
With a year-to-date increase of approximately 23%, the stock currently trades at around 24 times the estimated earnings projected for the upcoming twelve months. This valuation exceeds the average of the past few years (22 times) according to FactSet.
Mitchell believes that these high expectations have inflated the stock price beyond reasonable levels. Consequently, he recommends taking profits from the investment.
The general sentiment on Wall Street aligns with Mitchell’s valuation-based Sell recommendation. Only 33% of analysts covering Rockwell Automation rate the stock as a Buy. This falls below the average Buy-rating ratio for stocks in the S&P 500, which stands at roughly 55%. Comparatively, a year ago, approximately 38% of analysts rated the shares as Buy.
Despite this cautious outlook from analysts, the average analyst price target hovers around $314 per share, approximately in line with the current trading price.
In premarket trading on Wednesday, shares experienced a decline of 1.1%, reaching $313.50. Futures on the S&P 500 and Dow Jones Industrial Average exhibited no significant movement.
While some analysts had previously expressed optimism about Rockwell Automation, anticipating long-term benefits due to the resurgence of manufacturing in the U.S., the stock has declined by approximately 2% since late June. Nonetheless, we maintain confidence in this stock pick, even if overall sentiment on Wall Street currently differs.