Energy Efficiency And Electrification Will Boost Future Value

Published
10 Feb 25
Updated
08 Aug 25
AnalystConsensusTarget's Fair Value
US$180.90
21.0% undervalued intrinsic discount
08 Aug
US$142.99
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1Y
-7.7%
7D
-1.6%

Author's Valuation

US$180.9

21.0% undervalued intrinsic discount

AnalystConsensusTarget Fair Value

Last Update01 May 25
Fair value Increased 19%

Key Takeaways

  • Expansion in energy-efficient solutions and automation, along with strong backlog and acquisition synergies, positions the company for accelerating growth and margin improvement.
  • Focus on premium products, portfolio optimization, and effective risk mitigation supports improved business mix, cash flow, and long-term shareholder value.
  • Supply chain vulnerabilities, stagnant core markets, integration risks, trade uncertainties, and rising competition threaten revenue growth, margin expansion, and long-term earnings stability.

Catalysts

About Regal Rexnord
    Provides sustainable solutions for power, transmit, and control motion products in the North America, Asia, Europe, and internationally.
What are the underlying business or industry changes driving this perspective?
  • The accelerating adoption of energy-efficient and electrification solutions across industrial and commercial sectors continues to drive incremental demand for high-efficiency motors, subsystem solutions, and customized powertrain products-segments where Regal Rexnord is gaining traction, supported by regulatory tailwinds and sustainability initiatives. This positions the company for outsized revenue growth and improved pricing power over the medium and long term.
  • Surging investment in smart manufacturing, industrial automation, and data center buildouts is leading to a significant backlog in power management and motion control projects, as evidenced by recent large data center wins and a robust order funnel. This future conversion of backlog to sales, especially in longer-cycle projects, should meaningfully support top-line expansion and margin enhancement into 2026.
  • Execution on cross-sell and integration synergies from acquisitions (notably Altra) is creating operating leverage and margin expansion opportunities, as cross-sell wins bring in higher average selling prices and increased aftermarket revenue potential. These initiatives are likely to boost EBITDA margins and net earnings as integration matures and cross-sell wins ramp.
  • Regal Rexnord's strategic focus on portfolio rationalization (divesting lower-growth, lower-margin assets and concentrating on premium categories and value-added digital solutions) continues to enhance the business mix, raise return on invested capital, and generate stronger free cash flow, which can support further deleveraging and shareholder returns.
  • Despite recent headwinds from rare earth magnet availability and tariffs, the company has effectively mitigated these risks-restoring production flows and neutralizing the tariff impact on adjusted earnings and margins. As these temporary disruptions recede, temporary margin and revenue pressure should reverse, driving both margin recovery and renewed earnings growth.

Regal Rexnord Earnings and Revenue Growth

Regal Rexnord Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming Regal Rexnord's revenue will grow by 3.3% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 4.3% today to 11.4% in 3 years time.
  • Analysts expect earnings to reach $734.5 million (and earnings per share of $10.53) by about August 2028, up from $250.4 million today.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 21.4x on those 2028 earnings, down from 37.4x today. This future PE is lower than the current PE for the US Electrical industry at 28.5x.
  • Analysts expect the number of shares outstanding to decline by 0.36% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 10.2%, as per the Simply Wall St company report.

Regal Rexnord Future Earnings Per Share Growth

Regal Rexnord Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Prolonged exposure to rare earth magnet supply chain risks-primarily stemming from volatile trade policy with China-could disrupt production, increase procurement costs, and cause missed or delayed shipments in high-margin product lines, impacting both revenue and net margins.
  • Weakness and prolonged destocking in mature end markets such as residential HVAC and medical, combined with flat or negative organic growth, signal potential future revenue stagnation or contraction, constraining long-term earnings expansion.
  • Ongoing reliance on successful cross-sell and acquisition integration (e.g., Altra, Rexnord) creates execution risk; failure to fully realize operational synergies, harmonize ERP systems, or sustain above-average "win rates" could result in elevated SG&A expenses and diminished net margin improvement.
  • Heightened tariffs and global trade uncertainties, including potential escalations or shifts in supply chain dependencies (e.g., reliance on low-cost offshore suppliers), may lead to rising input costs or decreased competitiveness, thereby compressing gross margins and profitability.
  • Intensifying competition and possible technological disruption (e.g., increased customer preference for integrated digital/automation solutions or ESG-driven substitution away from suboptimal technologies) could erode market share and pressure both revenue growth and long-term earnings stability.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $180.9 for Regal Rexnord based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $204.0, and the most bearish reporting a price target of just $165.0.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.5 billion, earnings will come to $734.5 million, and it would be trading on a PE ratio of 21.4x, assuming you use a discount rate of 10.2%.
  • Given the current share price of $141.01, the analyst price target of $180.9 is 22.1% higher.
  • 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.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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