Things Could 'Get Worse' For Rockwell Automation; Bernstein Downgrades To Underperform

Bernstein Research recently issued a report on Rockwell Automation (NYSE: ROK) after raising concerns over growth opportunities and profitability for the company going forward in 2016. Analysts at Bernstein downgraded Rockwell Automation from Market-Perform to Underperform and issued an $81 price target.

"We have long been proponents of the secular shift to automation and Rockwell's product development and field efforts in particular. We continue to view the management and company as high quality," wrote Steven Winoker, senior analyst at Bernstein.

"We think ROK is to some large extent still a victim of its end market exposure. While better and more diversified than 2008/09 there is still risk from current high levels relative to cyclical peers [...] We still see at least another 10-15 percent downside for the stock."

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Rockwell Weakness Stems From 2 Sources

Analysts at Bernstein highlighted two reasons why they see weakness in Rockwell:

1. Slowing Organic Revenue Growth

Analysts noted that Rockwell suffers from low short-term visibility for their earning expectations and is one of the most economically sensitive companies in the industrial sector. Bernstein highlighted that they have noticed a contraction in new orders and see the company as being highly exposed to downside in future industrial forecasts.

2. Concerns Over Margins

Bernstein cited a declining foreign exchange outlook and increasing operational costs as reasons why Rockwell's margins are unlikely to improve in 2016. Analysts believe that management may have the potential to restructure Rockwell and increase profitability, but with current industry trends this may be unlikely in the near term.

At the time of this publication, Rockwell Automation was trading down 0.86 percent at $93.06.

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