On Monday, KeyBanc Capital Markets updated its outlook on Regal Rexnord (NYSE:ZWS) Corp (NYSE: RRX), raising the price target to $210 from the previous $180 while maintaining an Overweight rating on the stock.
"Although NT short-cycle headwinds persist, we walked away with a better appreciation for structural improvement to the growth profile of each of RRX's business driven by both organic (80/20 and LEAN) and inorganic (Altra and PMC) actions," said the analysts.
The analyst provided insights into the company's growth strategies, noting the structural improvements across Regal Rexnord's business segments. These improvements stem from organic measures such as the 80/20 process and LEAN initiatives, as well as from inorganic growth through acquisitions like Altra and PMC. Management's focus on these areas has led to a new long-term growth projection of 4-5%, an uptick from the historical proforma growth rate in the low single digits.
Regal Rexnord's Advanced Motion Control (AMC) division is particularly noteworthy, having achieved approximately 4.5% growth from 2019-2023 on a proforma basis, with targets set at 6-7% going forward. The AMC division benefits from strong market positions in sectors such as factory automation, food & beverage, aerospace, medical, and data centers. Additionally, the company is exploring opportunities to expand its medical manufacturing capacity.
The Power Transmission Solutions (PES) and Industrial Powertrain Services (IPS) segments are also expected to contribute to the company's growth. Although PES showed relatively flat growth from 2019-2023, it is aiming to surpass the general market growth rate in the future. Meanwhile, IPS, which saw about 2.5% growth in the same period, has a target growth rate of 4-5%.
InvestingPro Insights
Recent metrics from InvestingPro provide a deeper look into Regal Rexnord Corp 's (NYSE: RRX) financial health and market performance. A standout figure is the company's market capitalization, currently valued at $12.05 billion USD, indicating a solid presence in the market. Investors may also note the P/E ratio, which stands at a forward-looking 63.05 based on the last twelve months as of Q4 2023, suggesting a shift in earnings expectations for the year ahead.
Revenue growth figures are particularly impressive, with a 19.79% increase over the last twelve months as of Q4 2023, and an even more robust quarterly uptick of 29.2% in Q4 2023. This aligns with the organic and strategic acquisition growth strategies highlighted by KeyBanc Capital Markets. The gross profit margin has held steady at 33.8%, reinforcing the company's ability to maintain profitability amid expansion efforts.
InvestingPro Tips highlight that analysts predict Regal Rexnord will be profitable this year, aligning with KeyBanc's positive outlook. Additionally, the company has demonstrated a strong return over the last three months, with a 22.1% total price return, which could interest investors looking for recent performance indicators. For those considering a deeper dive into Regal Rexnord's investment potential, there are more InvestingPro Tips available, offering extensive insights into the company's performance and future prospects. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the 10 additional tips listed on InvestingPro to inform your investment decisions.
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