We came across a bullish thesis on RBC Bearings (NYSE:RBC) on ValueInvestorsClub by leob710. In this article, we will summarize the bulls’ thesis on RBC. The company’s shares were trading at $283.93 when this thesis was published, vs. the closing price of $301.65 on Jan 03.
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RBC manufactures and markets engineered precision bearings, components, and systems in the United States and internationally. It operates through two segments, Aerospace/Defense and Industrial. It has manufacturing facilities in 11 countries with a revenue concentration of 92% from the United States.
70% of its revenue comes from products for which RBC is the sole or primary supplier. Due to the unique technical specifications and design requirements of these products, there is a high barrier to entry. It also makes the revenue recurrent in nature, reducing the cyclicity of its business. It also caters to a wide range of industries, with customers occupying a leadership position within their sector. Key customers in the Industrials space are Caterpillar, Komatsu, and Halliburton. In the Aerospace/Defense segment RBC cates to players like Boeing, Airbus and Lockheed Martin.
RBC has delivered mid-single-digit growth consistently for the last 20 years. It has a market share of only 2% and there is sufficient opportunity to increase this figure. By improving the manufacturing process, gross margins have been high: Aerospace/Defense (40%) and Industrial (45%). The adjusted operating margin has also improved by 2.4% from 2021.
RBC has also been able to lower its debt levels with the net leverage ratio decreasing from 4x to 2.1x due to strong cash flow generation. It has also efficiently managed its capital spending by limiting it to 3-3.5% of its revenue.
RBC trades at 19x EBITDA multiple, below its competitors like TransDigm Group (22x) and HEICO Corp. (35x). RBC offers a strong track record and potential for market expansion and should trade at a similar valuation to its peers. It has provided an annual return of 16.5% in the last 20 years but has fallen behind in 2024 during which TransDigm Group and HEICO provided much higher returns. The revival in Industrials business should put the stock back on track.
While we acknowledge the potential of RBC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RBC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.