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Tuesday, October 24, 2006

Rockwell Revenues Light But We’ll Take Them

By William Trent, CFA of Stock Market Beat

Rockwell Automation (ROK) reported a 9% gain in sales and earnings that beat expectations. It’s guidance was slightly on the light side for both sales (up 7-8% next year) and earnings ($3.70-$3.90 vs. consensus at $3.82.) The thing is, having seen leading tech companies post sales gains of 2% (Xerox) to 4% (Keane and CDW) or 5% (IBM) that 7-8% starts to look to us like ROK is on a roll.

As we noted when we first wrote about the company, Rockwell Automation sells factory automation equipment. If ever there was an industry poised to do well in today’s economic environment, Rockwell is in it.

After reviewing the earnings release, about the only blemish we found was a decline in cash flow from operations due to higher funding requirements for the company’s pension plans. Since they aren’t the only ones in that boat (or its sister ship - the options backdating scandal) we don’t worry too much about it as long as their growth rate is so much better than those other firms mentioned. While they may not be setting the world on fire (especially after selling their stake in Rockwell Scientific, which was in the nuclear bomb design business) they are doing as best as we expect most firms to do in the current economy - and after all, one has to invest somewhere.

The author may hold a position in the securities discussed. A current list of the author's holdings is available here.

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