This industrial stock you likely have never heard of is a 'high-quality compounder,' says Morgan Stanley
RBC Bearings is poised for further gains as defense demand grows and ample room remains for further acquisitions, according to Morgan Stanley. Analyst Kristine Liwag reiterated her overweight rating and increased her price target on the stock by $25 to $415. That suggests more than 10% potential upside for the stock, which has already popped more than 26% this year. "Demand for RBC products remains strong across Industrials and Aerospace & Defense end markets," Liwag wrote in a note to clients. "We continue to view RBC Bearings as a high-quality industrials compounder with attractive growth and margin expansion potential." Liwag's new target comes after RBC on Friday reported mixed fiscal fourth-quarter results. The bearings and engineered components maker beat on earnings but fell short of revenue expectations, according to FactSet. RBC boasted strong growth in its aerospace and defense businesses, reporting a year-over-year net sales increase of 10.6% for the fourth quarter and 14.1% for fiscal 2025. It's seen strength in areas such as fixed-wing aircraft, missiles and guided munitions and space, according to the analysts. Liwag pointed out that RBC management expects strong demand to continue in fiscal year 2026 given expectations for aerospace to be up at least 15% and defense to be up by mid-to-high single digit percentages. Another part of Liwag's core investment thesis is that RBC has reduced its debt, and she expects it to fall even further by the end of fiscal year 2027. The acquisition of Dodge Mechanical Power Transmission unit has been "game changer" for RBC, she said, explaining that the business generates strong cash flow, which can be funneled to reduce debt. Dodge also has a recurring industrials business and better manufacturing technology from its expertise in factory automation, she said. "RBC's ongoing success is driven by multiple factors, with ongoing synergies from the Dodge acquisition being the largest contributor," Liwag wrote in the note. "Given RBC's improved leverage, we continue to see the potential for accretive M & A following its successful acquisition and integration of Dodge." Analysts polled by LSEG have an average price target on Boeing shares that indicates about 3% potential upside. Four of the seven analysts covering the stock have a strong buy or buy rating, while three share a hold rating.
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