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Stock Analyst Update

Avoid Rockwell until Growth Returns

Low-single-digit growth rates continue to dog the firm.


What Happened?
Rockwell (ROK) reported Wednesday that revenue grew 2% in fiscal 2000 to $7.2 billion and, thanks to cost-cutting initiatives undertaken as part of its Rockwell Lean Enterprise, free cash flow was a record $659 million. The aerospace division had a record year with $2.5 billion in sales, up 5%, while the struggling automation business was up just marginally to $4.4 billion. Net income increased 12% to $636 million compared with the prior-year period. During the conference call, management reiterated that it expects earnings per share to be between $3.10 and $3.20 in fiscal 2001, down from $3.35 earned in fiscal 2000 and $0.09 below initial expectations for 2000.

What It Means for Investors
Despite the firm's record free cash flow in fiscal 2000, we continue to believe that investors are better off avoiding Rockwell until growth returns to its cyclical automation business--which doesn't appear imminent. Given this unit's flat to negative growth, and low-single-digit growth rates for the entire company, we think Rockwell is unlikely to trade at higher levels.

Richard Wilson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.