Legacy Automation Will Struggle Amid Rising Cyber And Geopolitical Risks

Key Takeaways

• Growing geopolitical and industry pressures threaten Rockwell's global growth and profitability, as supply chain localization and open-source trends erode market advantage and margins.
  
• Delays in customer investments, rising cyber risks, and intensified price competition expose Rockwell to revenue volatility and declining market share in automation solutions.
  
• Enhanced operational efficiency, strategic investments, rising software-driven recurring revenue, and exposure to high-growth automation markets position Rockwell for resilient, margin-expanding long-term earnings growth.

Catalysts

Provides industrial automation and digital transformation solutions in North America, Europe, the Middle East, Africa, the Asia Pacific, and Latin America.

• Rockwell's heavy dependence on global manufacturing integration is at risk from rising geopolitical tensions and increased localization of supply chains, which could reduce its addressable market size and constrain organic sales growth in key international regions over the next several years.
  
• The accelerating industry trend toward open-source software and interoperability standards is undermining the company's ability to maintain premium pricing and differentiation for its largely proprietary automation systems, setting up long-term pressure on gross margins and overall profitability.
  
• Persistent delays in customer capital expenditures, especially for larger long-cycle projects in process industries, signal that manufacturers may further postpone or reduce automation investments due to workforce changes or macroeconomic uncertainty, eroding Rockwell's long-term revenue growth trajectory.
  
• Digital-first competitors and established automation giants are intensifying price competition, and Rockwell's continued reliance on legacy hardware and software platforms exposes it to declining market share and shrinking margins in its Intelligent Devices and longer-cycle configure-to-order segments.
  
• Escalating cyber threats targeting industrial automation increase the costs of compliance and risk customer reluctance to adopt connected solutions, threatening the stability of new services revenues and exposing the company's earnings to volatility from future cyber incidents or reputational damage.

Rockwell Automation Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Rockwell Automation compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Rockwell Automation's revenue will grow by 4.9% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 12.0% today to 15.0% in 3 years time.
• The bearish analysts expect earnings to reach $1.4 billion (and earnings per share of $12.77) by about August 2028, up from $966.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 26.4x on those 2028 earnings, down from 38.8x today. This future PE is lower than the current PE for the US Electrical industry at 30.6x.
• Analysts expect the number of shares outstanding to decline by 0.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.89%, as per the Simply Wall St company report.

Rockwell Automation Future Earnings Per Share Growth

Risks

• Rockwell Automation's rapid progress on structural cost savings and operational efficiency, including $360 million in cost savings over five quarters and a successful shift to continuous improvement, positions the company for sustained margin expansion, which may drive long-term improvements in net margins and earnings.
  
• Strategic investments of $2 billion over the next five years in plants, digital infrastructure, and talent are designed to enhance global competitiveness, expand margins, and capture growth from secular trends in automation, directly supporting both revenue growth and net margin expansion.
  
• The company's growing recurring revenue from software and cloud-native solutions-including double-digit growth in SaaS and robust software wins with major customers-supports a higher-margin, more stable earnings profile over time, which could offset cyclical downturns in other segments and support earnings growth.
  
• Exposure to fast-growing end-markets such as e-commerce warehouse automation, food and beverage, life sciences, and expansion into greenfield and brownfield projects with new customers provides Rockwell with organic revenue growth opportunities as global demand for advanced automation accelerates.
  
• A firm path to segment margin targets (including an aspiration of 23.5% margins) along with continued robust price realization, disciplined expense management, and demonstrated ability to manage tariff and compensation headwinds indicates resilience in maintaining or growing profitability, which may help support long-term EPS and share price appreciation.

Valuation

• The assumed bearish price target for Rockwell Automation is $261.77, which represents two standard deviations below the consensus price target of $345.28. This valuation is based on what can be assumed as the expectations of Rockwell Automation's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $410.0, and the most bearish reporting a price target of just $229.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $9.3 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 26.4x, assuming you use a discount rate of 8.9%.
  
• Given the current share price of $333.23, the bearish analyst price target of $261.77 is 27.3% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.