Goldman Sachs has reaffirmed its buy rating on shares of Regal Rexnord (NYSE:ZWS) Corp (NYSE: RRX), with a steady price target of $195.00.
The firm's assessment follows Regal Rexnord's investor day held on September 17, where the company's leadership, including CEO Louis Pinkham and CFO Rob Rehard, outlined their strategy for growth and efficiency.
The company is emphasizing an increase in organic growth and is set to boost research and development spending to 3% of sales by 2025, up from less than 2% in previous years.
Regal Rexnord is also aiming for significant improvements in its financial metrics, with goals to achieve over $1 billion in annualized free cash flow (FCF) by the beginning of 2026, and approximately 40% gross margins and around 25% EBITDA margins by 2027.
Despite experiencing fluctuating orders, with a decrease of 3.5% in August following a 5% increase in July, Regal Rexnord's projections for the fiscal year 2024 suggest that the lower end of the earnings per share (EPS) guidance range ($9.40-9.80) is more probable. The company's current EPS estimates align closely with the consensus of $9.50/$9.51.
Goldman Sachs' position reflects confidence in Regal Rexnord's potential for value, especially as the company undertakes material improvements in its fundamental metrics.
In other recent news, Regal Rexnord continues to draw attention from investors and analysts alike. The company recently reported strong second-quarter results, including a record adjusted gross margin of 38.1%, despite a 7% decrease in organic sales excluding Industrial Systems.
However, positive order growth in July suggests an upturn in the latter half of the year. Regal Rexnord's Power Systems business showed impressive performance, particularly in the data center market.
Meanwhile, the Power Efficiency Solutions (PES) segment saw a dip in organic sales but projects improved margins in the future.
Baird maintains an Outperform rating on Regal Rexnord, with a price target of $213, emphasizing the company's potential for dynamic earnings growth as market conditions improve.
On the other hand, KeyBanc reiterated an Overweight rating and a price target of $190, highlighting the company's significantly restructured portfolio and potential for long-term earnings growth.
The company also showcased financial prudence by paying down $481 million in debt, with plans to pay an additional $900 million in 2024. Looking ahead, Regal Rexnord expects positive top-line growth in the second half of the year and into 2025, primarily driven by anticipated low-single digit growth in residential orders.
InvestingPro Insights
Goldman Sachs has expressed a positive outlook on Regal Rexnord Corp (NYSE:RRX), and recent data from InvestingPro reinforces several aspects of this sentiment. Regal Rexnord's commitment to shareholder value is highlighted by a high shareholder yield and a remarkable track record of maintaining dividend payments for 52 consecutive years. Moreover, analysts are optimistic about the company's profitability, predicting net income growth this year and forecasting profitability for the full year.
InvestingPro Data shows a robust 14.21% revenue growth over the last twelve months as of Q2 2024, which underpins the company's growth strategy discussed during its investor day. Additionally, the company has shown a strong return over the last week, with a 10.21% price total return, and an impressive 15.18% over the last three months, suggesting a favorable short-term investment performance.
For investors seeking a deeper dive into Regal Rexnord's performance and potential, InvestingPro offers additional tips and metrics, including a comprehensive analysis of the company's financial health and future earnings potential. Interested readers can find more InvestingPro Tips for Regal Rexnord at https://www.investing.com/pro/RRX, which lists a total of 9 tips that provide further insights into the company's financial dynamics.
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