RBC Bearings Visit With Management Confirms Strong Aerospace Growth Remains On Track

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We met with RBC Bearings management on Thursday at the company’s headquarters in Oxford, CT, and came away confident that the company’s aerospace bearings business remains solidly on track for low- to midteens revenue growth in fiscal 2015, in line with Boeing (BA $121.89) and Airbus production growth.

While RBC Bearings’ industrial business is poised to rebound, the company noted that current end-market conditions were far less definitive about the pace of the recovery in demand for industrial bearings, with conflicting signals across many industrial end-markets.

The company noted that oil and gas remains the strongest industrial market rebound underway, but most of this is related to aftermarket and not OE. RBC Bearings has several new products it expects to soon introduce that should enable stronger OE sales during the second half of fiscal 2015.

The light construction equipment market is improving and semiconductor markets are starting to rebound. However, mining OEM remains fairly dormant, though mining aftermarket sales improved during the most-recent quarter.

RBC Bearings has been developing numerous other industrial products that should eventually help reduce its reliance on the industrial end-markets to more consistently expand its industrial sales, though it appears many of these products will not be ready until fiscal 2016.

RBC Bearings is working closely with its largest commercial aircraft manufacturing customers on ways to improve cost effectiveness.

The company expects to complete two additional smaller transactions over the next 6-8 months, following the most-recent three acquisitions completed during the past eight months. These could help augment RBC Bearing’s organic growth in fiscal 2015.

There are no changes to our EPS estimates for fiscal 2014 of $2.53 or for 2015 of $2.95, but we adjusted our quarterly EPS numbers slightly during the second half of fiscal 2015 to reflect the skew to 50 production days during the third quarter and 64 days during the fourth quarter.

We remain highly constructive regarding RBC Bearings’ potential for fundamental reacceleration, realizing the recovery in the company’s industrial end-markets may be uneven, but should be supplemented by selective acquisitions and new product introductions.

We continue to rate RBC Bearings Market Perform, and we increased our 12-month price target to $62 (up from $59 previously), based on the company’s historical 2- year absolute P/E multiple of 20.8 times our FY1 EPS of $2.95 estimated for fiscal 2015 (ending March 2015).

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