RBC Bearings (NASDAQ:ROLL) is not a large company, but its Q4 results are among the most important at this stage in the earnings cycle. The company makes ball bearings and ball bearing components which isn’t very exciting until you think about all the applications for bearings.
Bearings are in virtually every mechanical object made by man and are an essential indicator in the economic cycle. And RBC Bearings' recovery appears to be gaining momentum despite the rise of inflation, the fear of recession and dying out of pandemic tailwinds.
RBC Bearings Beats And Guides Higher
RBC Bearings had a blow-out quarter pulling in revenue of $385.9 million. This is up 123.9% on the combination of organic strength and the acquisition of Dodge Industrial. The revenue is up 10.4% on an organic basis and beat the Marketbeat.com consensus estimate by over 250 basis points. On a segment basis, Industrial sales led with a growth of 297% compared to the smaller 8.9% growth put in by the Aerospace and Defense segment.
Moving on to the margin, the margins contracted slightly on a YOY basis but not enough to offset the revenue strength or as bad as feared. The gross margin contracted by less than 100 basis points, the operating margin by about 240, leaves earnings well above the estimates. The $1.26 in adjusted EPS is not only up 16% versus last year but beat the consensus by a dime, but that measure includes non-cash impairments that do not have a meaningful impact on the operations. Excluding those items, adjusted cash earnings came in at $2.15 or up almost double from last year, and this strength is expected to continue into the coming quarter.
The company did not give guidance for the full year but did give guidance for Q1, and it looks like momentum is building. The company’s backlog is up sequentially and almost 53% versus last year, with new orders rolling in. This led management to increase the guidance for revenue to $355 million at the low end of the range compared to the $351 million Marketbeat.com consensus estimate.
The Sell-Side Is Buying RBC Bearings
The analyst's activity in RBC Bearings has been light this year, but it and the institutional activity are bullish tailwinds for share prices. The analysts rate the stock a Buy with a price target of more than 37% above the current price. Since the Q4 results were released, there have been no commentaries, but we think they will be favorable when they come. As for the institutions, they’ve been net buyers for the last 12 months and picked up an amount worth 14.15% of the market cap, with shares trading at $170. The institutions now own more than 93% of the stock.
The Technical Outlook: RBC Bearings Pops On Guidance
Price action in RBC Bearings popped in the wake of the Q4 release, and may move higher. The caveat is that price action has been halted at the short-term moving average, where it has been halted in the past. If the market can not get above the EMA, the stock may fall back to the recent low or lower.
Assuming the institutions favor the stock, we see them putting a bottom in the stock at the $160 level, if not propelling it higher from here. The risk, to us, is the valuation and dividend. The stock is trading at a high 39X its earnings and not paying a dividend, making it a risky buy in these uncertain times.
