Rockwell Automation Poised for Strong Q2 on US Factory Demand, Morgan Stanley Says

Morgan Stanley expects Rockwell Automation to report strong second-quarter results this week, bolstered by sustained demand for factory automation in the United States. In a note to clients, the investment firm highlighted multi-decade tailwinds from US reshoring trends as a key positive factor for the company's performance.

Analyst Outlook

Morgan Stanley analysts stated that while some areas of the US short-cycle economy may moderate, US factory automation is not expected to be among them. The firm maintains that US capital expenditure remains the "most durable source of strength" across the US industrials sector.

This positive outlook is based on the potential for a multi-decade upcycle as companies continue to relocate manufacturing operations back to the U.S. According to the firm, US industrial machinery and process machinery order rates are currently tracking at decade-high levels.

Broader Industrial Trends

Recent earnings from other US multi-industry companies support this view, having broadly exceeded conservative guidance for the second quarter. The data points to a bifurcation in the economy, with industrial sectors outperforming consumer-facing ones.

Key indicators of industrial strength include:

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• Eaton reported that its machinery original equipment manufacturer (OEM) orders jumped 35% in the second quarter.
• Regal Rexnord saw growth in its sensors for industrial manufacturing accelerate to 11% in the same period.

This strength in industrial automation and data centers contrasts with relative demand softness on the consumer side and across international markets, according to the firm's analysis.

Market Positioning

Morgan Stanley expressed a preference for Rockwell Automation over competitor Emerson Electric, citing greater confidence in the long-term duration of US factory automation demand. The firm noted that strength in process machinery, which is more closely tied to the oil and gas sectors, carries more "transient risk" linked to commodity prices and geopolitical events.

For investors, the focus will be on forward guidance. The market has recently rewarded companies showing positive momentum into the second half of the year and beyond, while penalizing those whose second-quarter strength came at the expense of future performance.