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Institutional Support For Rockwell International Begins To Erode 

Institutional Support For Rockwell International Begins To Erode 

It’s Not Too Late To Get Out Of Rockwell International 

The institutional activity data in Q1 and so far in Q2 suggests to us their support of Rockwell International (NYSE: ROK) is beginning to erode. The institutions own about 78% of the stock so this is or could become, rather, a very serious problem for shareholders. While the institutions were net buyers for over 12 consecutive quarters the sum of activity dropped sharply in Q1 and has turned net-bearish in Q2. Based on the Q1 results and outlook for the year we think the sum of activity will pick up again if it hasn’t already, and when it does the bulk of activity will be bearish. It’s not that Rockwell International is failing, per se, but global supply chain issues and inflation are cutting into the results and the outlook, and the outlook may still be optimistic.  

It Was A Rocky Quarter For Rockwell International 

Rockwell International has the unfortunate distinction of being a globally focused business heavily dependent on both Asia and the supply chain. Those issues cut deeply into both the top and bottom-line results in Q1 and we think this may happen again in Q2 and maybe Q3 and Q4 as well. The recent round of shut-downs in China has been grossly underreported, in our opinion, and is putting additional strain on the supply chain that could bring the economy to a standstill once again. The good news is that Rockwell International's demand remains strong, the bad news is that, after the FOMC begins hiking rates, demand could begin to evaporate, the global economy will enter a recession, and even the new, lower, guidance will be lowered again. 

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"We are navigating significant supply chain volatility with actions to increase component supply, mitigate inflation, and improve our resiliency over the coming quarters. Strong continuing demand driven by capital investment, the increasing importance of automation and digital transformation, and our unmatched position set the stage for market-beating growth this year and beyond," says CEO Blake Moret. 

Regardless of the outlook, the Q1 results show the impact of those shutdowns. The company reported $1.81 billion in revenue for a gain of 1.7% but came shy of the consensus by nearly 900 basis points. The gains are driven by increases in the Software and Lifecycle Services department offset by a decline in Devices. 

Moving on to the margin and earnings, the news does not get any better. The company reported a 2300 basis point contraction in the margin that can only partially be explained by non-cash impairments. On an adjusted, earnings contracted by 31.6% YOY to produce $1.66 in EPS or $0.63 short of expectations. As for the guidance, the company lowered its revenue and earnings guidance to ranges well below the previous guidance and the consensus estimates. We haven’t seen any analysts chatter yet but feel some downgrades or at least a few price target reductions are on the way. 

The Technical Outlook: Rockwell International Could Be At A Bottom … 

Shares of Rockwell International fell more than 12% in the wake of the earnings miss and guidance reduction and could fall further. The risk is a support target at the $214 level that is so far holding up the price. If this level produces a bounce and confirms as support, we’ll call it a bottom. Until then, we view this level as a possible stopping point on a journey south. If the price action does not make a significant bounce or test/confirmation of support soon, we see it moving below this level and continuing down into the $150 to $175 range. 

Institutional Support For Rockwell International Begins To Erode 

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Rockwell Automation (ROK)$198.71-0.3%2.25%36.13Hold$260.76
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