Prudential Likes Transformation Going On At Rockwell Automation

Sees shift to higher growth, return business.

Prudential Securities analyst Nicholas Heymann recently returned from a visit with executives at Rockwell Automation, and said he remains confident with his near-term earnings outlook for the company.

In fact, Heymann believes his longer-term forecasts could turn out to be conservative, given the company will likely focus its attention solely on its Control Systems business, which offers higher growth and return potential.

“Rockwell’s transition to almost exclusively provide productivity-enhancing automation software is a fundamental shift in the business model, which we believe demonstrates management’s confidence to successfully gain market share in the global integrated architecture market,” the analyst said in a research report.

Heymann says the company’s relative valuation should climb as Rockwell increasingly becomes a “software” company, generating most of its sales from software upgrades, incentive consulting, real-time data management and control systems products. He continues to rate the stock at overweight, and has a price target of $100. Rockwell shares were recently trading at about $70.

In reporting its second-quarter financial results in April, Rockwell posted second-quarter sales of $1.1 billion in its Control Systems division, a 13 percent increase over the 2005 quarter. U.S. sales in that segment jumped 17 percent, while non-U.S. sales rose by 9 percent, and the company said growth remained strong in Latin America and Asia.

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