RBC Bearings: A High-Conviction Play on Defense and Aerospace Growth

In the ever-evolving landscape of industrial manufacturing, few companies have demonstrated the strategic foresight and operational discipline of RBC Bearings Incorporated (NYSE: RBC). The recent acquisition of VACCO Industries for $275 million in July 2025 has not only solidified RBC's position as a leader in high-margin aerospace and defense markets but also positioned it to capitalize on a defense sector poised for sustained growth. With a robust backlog, expanding market share, and a clear line of sight to margin expansion, RBC Bearings is emerging as a compelling long-term investment thesis.

The VACCO Acquisition: A Strategic Masterstroke

RBC's acquisition of VACCO Industries was more than a financial transaction—it was a calculated move to dominate niche markets with structural tailwinds. VACCO, a $118 million revenue producer in its trailing 12 months, specializes in mission-critical components like valves, regulators, and filters for extreme environments. By integrating VACCO into its Aerospace/Defense segment, RBC has expanded its capabilities into high-margin applications such as naval submarines and space systems. The acquisition's immediate impact is evident in Q1 2026 results: RBC's Aerospace/Defense segment grew revenue by 10.6% year-over-year to $157.3 million, outpacing the Industrial segment's 3.3% growth.

The financial metrics are equally impressive. RBC's gross margin expanded to 44.2% in Q1 2026 from 43.1% in the prior year, driven by VACCO's premium pricing in mission-critical components. Adjusted EBITDA hit $139.8 million, or 31.9% of revenue, showcasing the acquisition's profitability. Operational synergies, such as the integration of VACCO's lean manufacturing processes with RBC's Operations Management System, have further reduced lead times and inventory costs, contributing to a 144% free cash flow conversion.

Defense Sector Tailwinds: A Gold Mine for RBC

The defense sector is not just a segment for RBC—it's the engine driving its future. Global defense spending is projected to exceed $2.3 trillion by 2030, with the U.S. alone allocating 5–7% annual growth through 2030 to modernize fighter jets, satellites, and submarine fleets. RBC's 11.9% year-over-year defense sales growth in Q1 2025 underscores its alignment with these trends. The company's backlog of $940.7 million as of March 2025, driven by multi-year supply agreements, provides a clear runway for revenue visibility.

The acquisition of VACCO amplifies this advantage. VACCO's marine business, which accounts for half of its revenue, aligns perfectly with the U.S. Navy's $355 billion shipbuilding plan through 2030. Meanwhile, its expertise in space applications positions RBC to benefit from the 7.8% CAGR growth of the space industry. RBC's CEO, Doctor Hartnett, has emphasized the company's focus on defense build-outs through 2030–2032, with plans to expand content in advanced propulsion systems and satellite components.

Margin Expansion and Financial Discipline

RBC's ability to sustain margin expansion is underpinned by its disciplined capital structure and operational efficiency. Despite the VACCO acquisition pushing its net debt/EBITDA ratio to 1.8x, RBC's strong free cash flow generation and $23 million in annual savings from preferred stock conversions provide a buffer. The company's EBITDA margin of 30.03% and ROE of 8.51% highlight its financial resilience, while a conservative debt-to-capital ratio of 0.03 ensures flexibility for further strategic moves.

Analysts project RBC to deliver 6–8% full-year growth in 2025, with Q3 guidance set at $390–400 million in revenue. The integration of VACCO is expected to yield $23 million in annual cost savings, unlocking further margin upside. Meanwhile, reshoring initiatives in the U.S. could add $50–100 million in annualized revenue, as defense contractors prioritize domestic supply chains for critical components.

The Long-Term Outlook: A High-Conviction Play

RBC Bearings is not merely reacting to industry trends—it is shaping them. With an 80%+ market share in certain bearings categories and a diversified backlog exceeding $1 billion, the company is insulated from cyclical downturns. Its strategic focus on defense and aerospace, combined with a track record of disciplined acquisitions, makes it a rare industrial play with clear, structural catalysts.

For investors, the case for RBC is compelling. The company's ability to leverage VACCO's technical expertise, capitalize on defense spending, and expand margins through operational synergies creates a virtuous cycle of growth. While risks such as interest rate volatility exist, RBC's strong balance sheet and recurring revenue model mitigate these concerns.

Final Verdict

RBC Bearings is a high-conviction investment for those seeking exposure to the industrial sector's most dynamic growth areas. The VACCO acquisition has turbocharged its capabilities in mission-critical markets, and the defense sector's long-term tailwinds provide a robust foundation for margin expansion. With a forward P/E of just 18x and a projected EBITDA margin of 32%, RBC offers a compelling risk-reward profile. For investors with a multi-year horizon, this is a stock worth watching—and acting on.