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Rockwell to Acquire Avnet, Expand in Cybersecurity Market

Zacks Equity Research

Rockwell Automation, Inc. ROK has entered into an agreement to acquire Israeli-based cybersecurity company, Avnet Data Security, LTD, in a bid to boost its cybersecurity offerings.

Avnet, a privately-held cybersecurity provider, offers various information technology and operational technology (IT/OT) cybersecurity services and solutions ranging from assessments, penetration testing, network and security solutions, and training to converged IT/OT managed services.

Cybersecurity is one of Rockwell’s fastest-growing businesses. The company’s complete set of services and solutions aid customers to develop, maintain, and optimize cybersecurity strategies.

Notably, the latest acquisition supports Rockwell’s strategy to achieve double-digit growth in Information Solutions and Connected Services by accelerating its expertise in IT/OT cybersecurity services globally. Further, Avnet’s service offerings will allow Rockwell to serve a broader range of customers globally, while also enhancing its cybersecurity portfolio. The acquisition also meets the manufacturing industry’s increasing demand for cybersecurity services.

The transaction is likely to close in the current year, subject to customary closing conditions. The deal is not expected to impact Rockwell’s financial results for this year.

The company continues to expand its portfolio of hardware and software products, solutions and services. It is likely to witness above-market growth driven by share gains in core platforms, double-digit growth in Information Solutions and Connected Services, as well as contribution from acquisitions and inorganic investments.

Last October, Rockwell acquired MESTECH Services. The buyout enhances the company’s capabilities to profitably grow Information Solutions and Connected Services globally and strengthen its ability to help customers execute digital-transformation initiatives.
Last January, the company acquired Emulate3D, an innovative engineering software developer, the products of which digitally simulate and emulate industrial automation systems. In 2018, the company acquired PTC, which is a leader in the Industrial Internet of Things and augmented reality.

However, the recent slowdown in U.S manufacturing activity remains a headwind. Per the latest report, the U.S Purchasing Managers’ Index (PMI) declined to 47.2% in December 2019, contracting for the fifth consecutive month. This remains concern for Rockwell. Furthermore, sluggish automotive, semiconductor and chemical markets are other concerns.

Price Performance

The company’s shares have gained 33.9% over the past year, outperforming the industry’s growth of 21.5%.

Zacks Rank & Other Stocks to Consider

Rockwell currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the Industrial Products sector are Cintas Corporation CTAS, Graphic Packaging Holding Company GPK and DXP Enterprises, Inc. DXPE, each carrying a Zacks Rank #2, at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has rallied 55.1% over the past year.

Graphic Packaging has a projected earnings growth rate of 13.1% for 2020. The company’s shares have gained 41.6% over the past year.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 21.2%.

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