Wisconsin-based Regal Rexnord (RRX) manufactures a range of industrial products, including electric motors and specialty electrical systems. In an expansion move, Regal recently acquired Arrowhead Systems in an all-cash transaction of $297 million. Arrowhead is a global provider of industrial process automation solutions.
The acquisition follows Regal’s recently completed merger with Rexnord’s process and motion control business in a transaction that also resulted in the company rebranding to Regal Rexnord. The remaining Rexnord business has been rebranded as Zurn Water Solutions (ZWS).
With this in mind, let’s take a look at the company’s latest financial performance and understand its newly added risks. (See Insiders’ Hot Stocks on TipRanks)
Q3 Financial Results
Regal Rexnord’s revenues grew 18% year-over-year to $892.7 million in the third quarter of 2021, surpassing the consensus estimate of $887.5 million. It posted adjusted EPS of $2.36, beating the consensus estimate of $2.35. For the fourth quarter, Regal anticipates to post adjusted EPS in the band of $1.97 to $2.27. (See Regal Rexnord stock charts on TipRanks).
Risk Factors
According to the new TipRanks’ Risk Factors tool, Regal’s main risk category is Finance and Corporate, which accounts for 24% of the total 37 risks identified for the stock. The company recently updated its profile with five new risks.
Under the Legal & Regulatory risk category, the company highlights that Regal and Zurn entered into a tax agreement that comes with certain restrictions. Regal informs investors that the terms of the agreement may prevent it from engaging in certain business transactions, even if such transactions could prove to be advantageous. Additionally, the company says, if Regal fails to keep its side of the agreement, Zurn would be exposed to significant taxes and it would be required to compensate Zurn, which could hurt Regal’s financial condition.
Under the Production risk category, the company says, Zurn is required to provide certain transition services related to the Rexnord transaction. Regal cautions that Zurn may be unable to offer those services or a dispute may arise. As a result, Regal may have to incur significant costs to obtain the services or resolve the dispute with Zurn, which could adversely impact its business.
Further, Regal tells investors that a significant number of its employees belong to labor union and many of its suppliers have unionized workforce. The company cautions that labor disputes that result in strikes at its facilities or supplier locations could disrupt its operations and hurt its operating results. Additionally, the company warns that its costs could increase materially and operational efficiency may get adversely impacted if more of Regal’s workers join unions, triggered by regulatory changes that make unionizing easy.
The Finance and Corporate risk factor’s sector average is at 36%, compared to Regal’s 24%. Shares of the company have gained about 38% year-to-date.
Analysts’ Take
Recently, KeyBanc analyst Jeffrey Hammond reiterated a Buy rating on the stock and raised the price target to $200 from $185. Hammond’s new price target suggests 23.69% upside potential.
Consensus among analysts is a Strong Buy based on 4 Buys. The average Regal Rexnord price target of $193.75 implies 19.83% upside potential.
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