Automation Survey by USA Stock Analysts Longbow

March 9, 2011
Longbow Research is an institutional equity research organization.

Longbow Research is an institutional equity research organization. It produces in-depth research on a short list of companies for investors. In January it issued an automation survey, looking at several USA-based companies operating in this area, defined as "industrial technology." Whilst not a cross section of the automation industry, the depth of the research into these companies makes the comments interesting. Longbow Research makes these comments to assess the future share price performance expected.

The companies Longbow chose to report on were, alphabetically, Ametek, Danaher, Eaton, Emerson, National Instruments, Rockwell and Roper Industries. For all, 2010 finished with strong performances, and 2011 growth forecast is seen as 10% to 15%. The important market areas this year are seen as packaging and OEMs, gas shale projects, oil and chemicals. Price increases of 3% to 5% have been implemented around the year end.

Throughout the report, Rockwell is highlighted, leading to the conclusion that it is performing better than previously expected. Longbow reiterates its "Buy" recommendation on Rockwell stock, based on a revised 2011 earnings per share forecast at $4.30, and has increased the 12- month share target price to $90, compared to the $75.60 current when the report was written. This was based on telephone discussions with automation/electrical distributors and automation integrators across the USA only.

Automation demand was seen as broad based, from such categories as programmable logic controllers (PLCs) and programmable automation controllers (PACs), software systems, electric motor drives, instrumentation and sensors. It was reported that there is a growing interest in wireless systems as technology has improved and as price points have lowered, which was taken as a positive pointer for Emerson.
Previously, this monitoring had looked at the Rockwell PlantPAx 2.0. In the current survey Longbow did not hear of any accelerated adoption rate, although some Rockwell distributors have stated that they have started to see more activity from smaller process businesses. Another distributor was looking to the February launch of the Rockwell Micro 800 series and the PanelView Plus to drive the market. A Midwest distributor commented that "Some of the larger more sophisticated plants are converging the shop floor to the enterprise system. In the past it may have been a problem but we are working with Cisco and Rockwell".

Several distributors mentioned the ABB move to acquire Baldor as able to boost the ABB distribution effectiveness in the USA, something that has not been effective previously, so ABB/Baldor will be a threat in a couple of years. One Eastern distributor described himself as guardedly optimistic, and added: "No inventory, and long lead times are cutting in on our ability to sell product. We could meet demand if there was some availability and I had a trained workforce. I'll tell you, everybody that has worked at McDonald’s or a car dealership thinks they are a brain surgeon."

Longbow also made "Buy" recommendations on Danaher and Roper Industries.