summation
- If you want to invest in true automation robot-related stocks rather than thematic investments, consider Rockwell Automation.
- The continued reshoring atmosphere in the U.S. and the manufacturing industry's move away from China could be an opportunity for Rockwell.
- The stock price is overvalued compared to peers, and capex investment by companies is somewhat delayed due to the high interest rate environment.
- From a long-term perspective, factory automation is an unavoidable trend.
introduction
Company Introduction
Rockwell Automation is a company that provides factory automation solutions. It not only supplies all hardware essential for smart factory construction, such as conveyors, robot arms, motors, and sensors, but is also in charge of overall manufacturing technology, including production monitoring systems, quality control, and even simulation and digital twin-related software. Rather than making equipment specialized for a specific field like ASML's EUV equipment, it is difficult to specify major customers because they are automation equipment commonly used throughout the industry. Any company with a large-scale manufacturing line can be said to be a potential customer of Rockwell.
Rockwell Automation business areas (Source: Rockwell Automation, Presentation)
Business Division
Rockwell Automation's business segments are largely divided into Intelligent Devices, Software & Control, and Lifecycle Services. If we break it down into slightly grand terms, it would be hardware, software, and maintenance.
Rockwell Automation business segments and performance (Source: Rockwell Automation, Presentation)
Investment Point
Reshoring in America
The United States is encouraging investment in various sectors, including renewable energy, semiconductors, and electric vehicles, through semiconductor and advanced technology-related laws and the Inflation Reduction Act (IRA). As a result, many companies are More than $200 billion has been invested since the bill was passed, focusing especially on the semiconductor and clean technology sectors. to expand their manufacturing base in the United States.
The rate of increase in hourly wages in the United States has remained high since COVID-19, and this atmosphere can naturally be an opportunity for Rockwell Automation, which supports automation in manufacturers.
US hourly wage growth rate (year-over-year, %) (Source: Investing)
Reflecting this, large-scale orders are continuing, including a solar panel factory contract with First Solar (worth $1 billion) at the end of last year, Electric vehicle line contract with Hyundai Motor Company (worth $5.5 billion), and an electric vehicle line contract with Ford.
Opportunities in Emerging Markets
There are countries that cannot be left out when talking about factory contracts. These are emerging countries such as India and Vietnam, which are aiming to become the world's manufacturing hub after China. Recently, apple, which has been struggling with the China issue, as well as Cisco and Tesla, have been announcing the establishment of factories in China. Recently, even AMD has invested $400 million over five years, [A story about India dreaming of becoming a semiconductor] hub]( https://www.sedaily.com/NewsView/29SC02TXIY ). The demand for automation following the establishment of factories is inevitable these days. Rockwell has been operating in India for 40 years. and is expected to benefit significantly as a company that has built a solid position.
The same goes for Vietnam. Rockwell aims to double market share by 2025 is focusing on business expansion in Vietnam. Vietnam is one of the main options for global manufacturing companies as economic exchanges with the United States have recently expanded to the point where its relationship with the United States has been upgraded to a 'comprehensive strategic partner'. Recently, Vietnam's manufacturing industry is booming to the extent that not only global companies but also Chinese companies to avoid tariffs are seeking to relocate to Vietnam, which appears to be an opportunity for Rockwell, which is focusing its efforts here.
For reference, about Vietnam as a manufacturing hub [An article covering Vinfest] (VFS)]( https://www.rockwellautomation.com/content/dam/rockwell-automation/documents/pdf/company/about-us/ir/2023/Q2FY23-presentation-final.pdf2 c%ec%8a%ac%eb%9d%bc-%eb%b9%88-%ed%8c%a8%ec%8a%a4%ed%8a%b8vfs%ec%97%90-%eb%8c%80%ed%95%b4-%ec%95%8c%ec%95%84/) I've looked at it in more detail.
Risk
Highly rated
Since the pandemic, wage growth has continued to rise, and the growth of Rockwell, a leader in factory automation, seemed obvious to anyone. In other words, there was a lot of room for overestimation.
Stock prices, which had continued to rise since the pandemic, plummeted starting in 2022, and recently fell again, unable to break through their previous high.
Ticker Company NameMarket CapitalizationPERPBRROKRockwell Automation, Inc.32.32B22.969.67ABBNYABB Ltd65.99B19.35.17EMREmerson Electric Co.57.42B17.232.81SIEGYSiemens Aktiengesellschaft112.30B11.652.27Rockwell Automation vs Peer Group Valuation Comparison (Source: Seeking Alpha)
If you compare the value compared to the peer group, you can see that it is relatively high compared to prominent global peers. It's not that it's several times higher than other companies, and the growth stock is around 20, but is it overvalued?? You might ask, I think it's because of misunderstanding about the sector.
Industrial Robot Market Forecast (Source: Hana Investment & Securities Research)
The graph on the left shows the growth outlook for the global robot market. If the forecast until 2028 is converted to CAGR, it is about 7.8%. Some robot-related stocks have been excited recently with the atmosphere that something great is about to happen, such as the AI revolution and the end of labor, but the reality of the sector is slightly different.
In fact, robots have been used in industrial settings for decades. Conveyors and parts mounting devices that are commonly seen in the media and in videos of the national anthem are industrial robots handled by ROK.
Therefore, when approaching the sector, it may be more reasonable to approach it as if it were Caterpillar (construction equipment stock) rather than an explosive growth stock or a theme stock approach.
Higher interest rates, uncertain future
Despite high wages and a huge amount of market funds, we saw a decline of more than 40% from early to mid-2022. The main reasons were supply chain issues and a poor outlook for the economy, and the resulting delay in investment led to a decline in the target. Rockwell's stock price is attempting to rebound as voices talk about the bottom of the economy, but in fact, it is difficult to say that the current sentiment is significantly different from before. No one wants to actively expand factory capacity during a bad economy, and if interest rates are high at the same time, people will become more cautious. As Rockwell believes that factory expansion in each industry is directly linked to performance, we are cautious about being certain of the bottom.
Recent Issues
Acquisition of Clearpath Robotics
Rockwell Automation Acquired Clearpath Robotics on September 12th. Clearpath Robotics is a company that sells industrial autonomous robots (AMR) headquartered in Ontario, Canada.
The AMR market is expected to grow by approximately 30% annually for the next five years, and the market size is expected to reach $6.2 billion in 2027. AMR is expected to be a stronger complement to Rockwell solutions. Rockwell said the acquisition is expected to increase sales by about 1%, cost about $250 million, and the transaction is expected to be completed in the first quarter of 2024.
Infinitum high-efficiency motor exclusive contract
Rockwell Automation announced on September 14th Details of the contract with Infinitum. Infinitum is a provider of high-efficiency motors, and the combination of Infinitum's Aircore EC motor system and Rockwell's PowerFlex® drive technology will result in a 50% smaller and lighter product, 66% less copper usage, and a 10% reduction in energy consumption than before.
The energy efficiency of motors plays a large part in reducing greenhouse gases, a recent important global trend, and is expected to not only provide practical benefits to customers, but also help build Rockwell's image as an eco-friendly product.
Ben Schuler, Infinitum's founder and CEO, said the agreement could reduce energy, materials and waste and increase sustainability in energy-intensive sectors.
Under this contract, Infinitum's VFD motors will be exclusively supplied to Rockwell starting in 2024.
Infinitum product introduction (Source: infinitum)