On Friday, Oppenheimer reaffirmed its Outperform rating on Regal Rexnord Corp (NYSE:ZWS) (NYSE:RRX) with a steady price target of $210.00. The firm's analyst, Brian F. Blair, provided insights into the company's segment strategy, cycle positioning, and financial guidance. Blair noted that Regal Rexnord's initial guidance for 2025 is expected to be conservative, projecting flat organic growth.
The anticipated earnings per share (EPS) increase is attributed to cost synergies of $65 million and a $50 million reduction in net interest expenses. However, this is partially offset by an increase in the tax rate to a normalized 24%, resulting in an estimated incremental $1.00 in earnings.
Regal Rexnord's channel inventories are deemed balanced, and order trends have turned positive, with the third quarter of 2024 (3Q24) showing a 2.5% increase and a book-to-bill ratio of 1.00, improving from a 1.5% decline and a 1.01x book-to-bill ratio in the second quarter (2Q). The company is also reportedly building some backlog in its Architectural & Mechanical Components (AMC) segment and maintaining steady performance in its Industrial Power Solutions (IPS) division.
Blair suggests that the second half of the year (2HE) could mark a shift to stability in order growth, contrasting with the growth experienced in 2023 due to backlog reduction. The recent balanced book-to-bill ratios, along with the company's intention to avoid cuts, are the main factors supporting the view that Regal Rexnord will present a modest outlook for the start of 2025, steering clear from making assumptions about the timing of a market recovery.
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