Rockwell Automation: Tailwinds From Onshoring U.S. Production

Key Points

• Rockwell Automation's beat-and-raise quarter has the market in motion and ready to move higher in 2025.
• The company is well-positioned for the onshoring of U.S. manufacturing.
• It is a capital return machine paying a healthy dividend and repurchasing shares aggressively. 

To paraphrase Rockwell Automation’s NYSE: ROK CEO, Blake Moret, the company’s home-field advantage ideally positions it to benefit from onshoring U.S. manufacturing. Its manufacturing footprint is North American-centric, with more than 70% located within the continental US. The company is a leader in automation; its products are devices and tools to automate processes and increase efficiency, which businesses and industries need to manufacture domestically and succeed.

The takeaway is that Rockwell’s business may not grow robustly over the coming years, but it will grow and sustain its capital return, which is critical to the investment. 

Rockwell Automation is a capital return machine that pays a solid dividend and buys shares aggressively. The dividend annualizes to about 2% in early May and is safe at 53% of the earnings forecast. The dividend is also reliable and expected to increase annually because of the 15-year history, cash flow, and balance sheet. Regarding the buybacks, they are also reliable and reduce the count significantly each quarter.

Buybacks in Q1 shaved more than 1.25% off of the average count and are expected to continue robustly this year. The company has more than $1 billion left on the authorization, which amounts to about eight quarters at the Q1 pace.  

Rockwell Automation Stock Price Surges After Beat-and-Raise Quarter

Like many other businesses, Rockwell Automation struggled in CQ1/FQ2, but results were less bad than feared. The company reported only $2 billion in net revenue due to weakness in both core segments, but the 6.1% decline is 100 basis points above MarketBeat’s reported consensus and compounded by improved operational quality. 

The company widened its pretax margin by 30 basis points and the segment operating margin by 140, leaving the adjusted earnings down only 2% compared to the larger top-line decline. The gains also outpaced analysts' forecasts, a detail applauded in client notes, and the cash flow details are more impressive.

The company’s efforts to improve quality increased the free cash flow by roughly 250%, increasing its financial health and ability to continue with its capital return. Regarding the guidance, it what improved to a range with revenue growth expected at the high-end range and the low-end aligning with the analysts consensus. 

Analysts are generally bullish on this stock, rating it with a consensus of Hold and a price target forecasting 5% upside, including the post-release price surge. The guidance increase will likely lead them to increase their quarterly forecasts and stock price targets, the question is by how much?

As it is, the high-end range in early May puts this market near $350 or another 15% upside that could be achieved by year’s end. 

Likewise, institutional activity is supportive of this market. The institutions provide a solid support base owning about 75% of the stock and buying at a pace of 2-to-1 versus sellers over the past 12 months. Selling has intensified in 2025, but remains below the buying pace, leaving bulls in control. With this in play, Rockwell Automation's price action could retreat, but significantly lower lows are not expected. 

Rockwell Automation: Range-Bound Trading for This Capital Return Machine

Rockwell Automation’s stock price surged 10% following the release and could continue higher. However, higher highs than the top of the multi-year trading range are unlikely without positive revisions from analysts or some other, stronger catalyst. 

Until then, this market will most likely remain range-bound, but there is a silver lining to the cloud. The top of the range is near the $350 level, and a 20% gain when it is reached. In the long term, this market will likely sustain its uptrend despite volatility and reach new all-time highs due to share repurchases and value gains.