Tough End-Markets Temporarily Putting The Brakes On Regal Rexnord's Long-Term Growth Story

Summary

• Q2 earnings were mixed with ongoing industrial and automation weakness, but aerospace, data center, and medical end-markets remain strong, and order trends seem to be improving.
• General industrial, discrete automation, and off-road machinery are likely to remain weak for at least a little longer, but industrial and automation markets should recover in 2025.
• Management has been leveraging capabilities in precision motion control to expand its opportunities in faster-growing markets like aerospace and biopharma, and repositioning core tech into faster-growing markets remains a driver.
• Despite some risks in the second half, I expect long-term revenue growth of 4%-6% and meaningful margin expansion, driving low double-digit long-term FCF growth.
• Valuation is not a slam dunk, but a 12.5x forward EV/EBITDA multiple suggests a fair value close to $190, supporting a cautiously optimistic outlook.