Regal Rexnord Company RRX announced yesterday that it has acquired Arrowhead Systems in an all-cash transaction. The company announced the deal on November 2, along with its third quarter 2021 results.
This is the first acquisition by Regal Rexnord since it began trading on the NYSE on October 5, 2021. Regal Rexnord is the new legal name of Regal Beloit Corporation. The entity was formed after the merger of the business activities of Regal Beloit with the Process & Motion Control segment of Rexnord Corporation on October 4.
The new legal name of Rexnord Corporation is Zurn Water Solutions Company ZWS. (For more information on the business combination and other related events please read: Regal Beloit Trades as Regal Rexnord Post Rexnord Deal)
Notably, Zurn Water completed its first buyout of the Wade Drains product portfolio from McWane, Inc. on November 18, 2021. ZWS also began trading on the NYSE on October 5.
Regal Rexnord shares gained 0.26% yesterday, closing the trading session at $ 170.39.
In the headlines
Arrowhead specializes in providing automation solutions for industrial processes. Its products include palletizers and conveyors for consumer staples, food and beverage, aluminum cans, personal care and other markets. It also focuses on providing after-sales solutions and services and digitization projects.
It benefits from a strong client base in the United States and abroad and an efficient management team. For 2021, Arrowhead is expected to generate revenue of $ 100 million.
With the addition of Arrowhead, Regal Rexnord is well positioned to leverage the benefits of its extensive product offerings, end-market exposure, customer base, technological expertise and experienced team. The buyout will enhance Regal Rexnord’s existing transportation offerings, including metal conveyor belts, transfer / diversion stations, tabletop conveyor chains, plastic conveyor belts and guide rails.
By the fifth year of the buyout, Arrowhead is expected to boost ROIC to> 10% and generate revenue and cost synergies of $ 12 million. Additionally, high to low double digit organic sales growth is expected from the buyout by year three.
Regal Rexnord will integrate Arrowhead into its Motion Control Solutions segment. This segment includes the former power transmission solutions of Regal Beloit and the former Process & Motion Control division of Rexnord Corporation. In the third quarter of 2021, segment revenue totaled $ 207.6 million, an increase of 24.4% from the previous year quarter. Segment revenues represented 23.3% of Regal Rexnord sales in the quarter.
Zacks Rank, Price Performance, and Profit Estimates
With a market cap of $ 11.5 billion, Regal Rexnord currently holds a Zacks Rank # 3 (Hold). The company is well positioned to benefit from healthy orders and backlog, restructuring programs, effective pricing measures and synergies from inorganic stocks. Component shortages, inflation issues and supply chain restrictions are cause for concern.
Over the past three months, shares of Regal Rexnord have gained 12.4% against industry growth of 1.3%.
Image source: Zacks Investment Research
Zacks’ consensus estimate for the company’s earnings per share is set at $ 8.77 for 2021 and $ 10.23 for 2022, reflecting increases of 2.5% and 3.2% over respective figures 30 days ago. The consensus estimate for the fourth quarter of 2021 of $ 2.16 has jumped 6.9% in the past 30 days.
Regal Rexnord Corporation Price and Consensus
Regal Rexnord Corporation price-consensus-chart | Regal Rexnord Corporation Quote
Actions to consider
Two top-ranked stocks in the industry, which are actively engaged in buyout activity, are discussed below.
SPX FLUX, Inc. FLOW acquired Philadelphia Mixing Solutions in May 2021 and UTG Mixing Group in January 2021. FLOW currently has a Zacks Rank # 1 (strong buy). You can see The full list of today’s Zacks # 1 Rank stocks here.
SPX FLOW shares have gained 9.4% in the past three months. Zacks’ consensus estimate for FLOW revenue increased 8% for 2021 and 17.9% for 2022 over the past month.
AO Smith Company AOS enhanced its business and water heater offerings by acquiring Canadian company Giant Factories, Inc. in October 2021. It purchased Master Water Conditioning Corporation in July. AOS currently carries a Zacks Rank # 2 (Buy).
In the past three months, AOS shares have gained 14.1%. Additionally, Zacks’ consensus estimate for AO Smith’s revenue has increased 6.6% for 2021 and 9% for 2022 in the past 30 days.
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AO Smith Corporation (AOS): Free Stock Analysis Report
SPX FLOW, Inc. (FLOW): Free Stock Analysis Report
Regal Rexnord Corporation (RRX): Free Inventory Analysis Report
Zurn Water Solutions Corporation (ZWS): Free Inventory Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.