Morgan Stanley Initiates Coverage on Rockwell Automation, Sees Significant Upside Potential

Morgan Stanley analysts initiated coverage on Rockwell Automation (NYSE:ROK) with an Overweight rating and a price target of $320 on the stock. The analysts see a strong risk-reward opportunity in Rockwell, noting that the company's shares have fallen to a multi-year low despite the ongoing momentum in U.S. reshoring efforts. The analysts estimate this trend as a long-term, multi-decade $10 trillion opportunity for the industrial automation sector.

The analysts anticipate a significant rebound in Rockwell's orders, forecasting a 30% year-over-year increase in the fourth quarter of 2024 and continued double-digit growth in fiscal 2025. This recovery in orders could signal to the market that the negative revision cycle is over, potentially driving a valuation uplift for the stock. The analysts highlight that Rockwell's current valuation trades at around 20% premium to the S&P 500, well below the 40-50% premium it has commanded during previous upcycles, suggesting room for a 4-5 turn re-rating.

With U.S. manufacturing capital expenditures (Capex) expected to become a tailwind after decades of stagnation, the analysts believe Rockwell is positioned to benefit as the U.S. attracts global investment. Additionally, with manufacturing project starts running at 2.5 times pre-Covid levels and automation spending providing better returns due to higher wages, the analysts conclude that the recent de-rating of Rockwell's stock is overdone, creating a compelling investment opportunity.