Morgan Stanley sees this industrial robotics stock as an 'automation pure play'

Published Tue, Feb 14 202311:15 AM EST

Despite being in a weird moment as a business, Morgan Stanley said Rockwell Automation is still a good way to play the automation trend. Analyst Joshua Pokrzywinski has an overweight rating on the industrial robotics and automation stock. His $335 price target — the highest on Wall Street, according to Refinitiv — implies 18% upside from where Rockwell closed Friday. Rockwell focuses on industrial automation — increasingly attractive as businesses look to find a substitute for labor, and to trim labor costs. Pokrzywinski called Rockwell an "automation pure play," noting it's in the middle of an "unusual" business cycle. Much of Morgan Stanley's bullishness stems from a revived manufacturing landscape. The White House says more than $300 billion in manufacturing projects have been announced since 2021, but Pokrzywinski believes the actual amount is probably larger. ROK 1Y mountain Rockwell shares over past 12 months. Those investments could result in a 4% to 5% annual growth in capital spending on U.S. manufacturing, according to Morgan Stanley estimates. So called "near-shoring" could ultimately help those expenditures double from historical growth rates of 3%-4%. "For all the cyclical ambiguity reflected in macro caution and strong micro trends, the backdrop for automation spending and backlog cushion against a hard landing supports a bullish view on ROK," Pokrzywinski said in a note to clients Tuesday. But Pokrzywinski said Rockwell is in a unique moment, standing out from other multi-industry companies thanks to its larger backlog. The backlog has been attributed in part to high demand in recent years paired with supply chain issues that have just recently begun resolving. The backlog amounts to more than $5 billion, the analyst wrote, notably higher than the approximately $2 billion seen in 2021. And the backlog covers 60% of consensus revenue expected in the next 12 months compared with under 30% at the start of 2021, he said. Looking at the stocks fundamentals, Morgan Stanley views Rockwell's valuation as "constructive," noting its market multiple tends to bottom out six months before a trough in the purchasing manufacturers index. Pokrzywinski expects the PMI to bottom in mid-to-late 2023. Rockwell hit a new 52-week high this week, and has rallied about 14% this year after slumping more than 26% in 2022. — CNBC's Michael Bloom contributed to this report.