On Thursday, Rockwell Automation (NYSE:ROK) received an upgrade from Jefferies, moving from a Hold to a Buy rating, with a new price target set at $350. The upgrade is based on a projected upswing in demand.
"ROK is poised to benefit from a recovery in US capital investment given our more positive view on US manufacturing in CY25 and a continuation of government funded projects (i.e., CHIPs Act, IRA)," analysts at Jefferies said.
Rockwell Automation is well-positioned to capitalize on these developments, not only through new investments but also due to its substantial installed base, with maintenance, repair, and operations (MRO) sales traditionally representing a third of the company's revenue. The firm is also on track to significantly improve its total segment margin by approximately 400 to 500 basis points compared to fiscal year 2024, aiming for around 23.5%.
The management team at Rockwell Automation has been actively pursuing numerous productivity-focused continuous improvement projects. These include direct sourcing initiatives, which have realized savings of up to 30% in certain areas, and logistics projects that have cut costs by more than 50% in high volume lanes. In addition, the company is expanding its pricing optimization efforts to about 60,000 of its over 300,000 stock-keeping units (SKUs), with around 2,000 low-margin SKUs already having seen price increases.
The emphasis on return on investment (ROI) within investment prioritization is anticipated to open further opportunities for long-term margin growth. The management has expressed a readiness to invest in projects that are accretive to margins and offer high ROI, indicating a strategic approach to enhancing profitability.
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