RBC Bearings: A Beacon of Resilience in Aerospace/Defense’s Golden Age

Amid a mixed fourth-quarter report, RBC Bearings (NASDAQ: ROLL) has reaffirmed its status as a pillar of the aerospace and defense sector. While revenue fell short of expectations, the company’s robust EPS beat, margin expansion, and strategic positioning in high-growth markets signal a compelling investment opportunity. For long-term investors, RBC’s exposure to Boeing’s production recovery, defense budget tailwinds, and disciplined financial management make it a standout play in a sector primed for expansion.

Operational Excellence Amid Volatility

RBC’s Q4 2024 results underscored its ability to navigate short-term headwinds while maintaining long-term growth trajectories. Despite a 3% revenue miss driven by softness in the industrial segment, the company delivered an EPS beat of 10%, with adjusted earnings rising to $2.30 per share. The real star was margin performance: gross margins expanded to 44.2%, a 205-basis-point improvement from the prior year, fueled by synergies from prior acquisitions and operational efficiencies.

This margin discipline is critical. While industrial peers like Regal Rexnord (RRX) and Dover Corp. (DOV) struggle with macroeconomic pressures, RBC’s aerospace/defense segment—which generates 63% of revenue—delivered 10.6% growth, outpacing broader industry trends. CEO Michael Hartnett emphasized: “Our focus on high-margin aerospace and defense markets is paying off.”

Boeing’s Recovery: A Tailwind, Not a Risk

The company’s ties to Boeing (BA) are often seen as a vulnerability, but Q4 data reveals the opposite. RBC’s aerospace segment growth is directly tied to Boeing’s progress in resolving production bottlenecks. Boeing’s 737 MAX production is now approaching 38 planes per month, with targets to reach “upper 40s” by late 2026. This ramp-up is critical for RBC, as its Boeing commercial OEM revenue could double by 2026 compared to 2019 levels due to increased shipset content in newer aircraft.

Boeing’s recovery isn’t just about orders—it’s about aftermarket demand. As production stabilizes, RBC’s bearings will power planes for decades, creating recurring revenue streams through maintenance, repair, and overhaul (MRO). CFO Rob Sullivan noted that aerospace margins have “significant runway” for expansion, with full-year 2025 margins expected to rise by 50–100 basis points as volumes normalize.

Defense Dominance: A Shield Against Uncertainty

While industrial markets face softness, RBC’s defense segment is thriving. Backed by a $940 million backlog and a 15.9% year-over-year sales growth in defense, the company is capitalizing on U.S. defense spending trends. The proposed $1 trillion U.S. defense budget—including submarine programs and guided munitions—aligns with RBC’s strengths.

The company is also investing in capacity to meet demand. A 100,000-sq.-ft. facility in Tucson, Arizona, will address bottlenecks in submarine component production, ensuring RBC can capitalize on long-term contracts. CEO Hartnett stated: “Defense is a strategic pillar. We’re expanding capacity to outgrow the market.”

Debt Reduction: A Foundation for Growth

RBC’s financial discipline has been a quiet triumph. Total debt fell to $1.19 billion in 2024, a 14% decline from 2023, and leverage is now 1.7x EBITDA—a post-Dodge acquisition low. This deleveraging has freed capital for strategic M&A, with the company targeting $275 million in annual debt repayment while maintaining a 4.5% dividend yield.

Valuation: A Buying Opportunity in a Rebounding Sector

At current levels, RBC trades at 12.3x 2025E EPS, a 20% discount to its 5-year average. This undervaluation is unjustified given its 15–20% CAGR potential in aerospace/defense and margin expansion opportunities. The stock’s 12-month price target of $140 (vs. current $115) suggests 22% upside, with further catalysts including Boeing’s production milestones and defense budget allocations.

Risks and Considerations

• Capacity Constraints: 70% of aerospace plants operate at full capacity, requiring capital reinvestment.
• Trade Policy: Tariffs remain a risk, though RBC’s U.S.-based manufacturing mitigates exposure.

Conclusion: A Buy for the Long Game

RBC Bearings isn’t just surviving—it’s thriving. Its margin discipline, Boeing-linked growth, and defense dominance position it to outperform in a sector with $1.5 trillion in annual spending. The Q4 revenue miss is a speed bump, not a roadblock. For investors willing to look beyond quarterly noise, RBC offers a rare combination of operational excellence, sector leadership, and valuation upside. This is a stock to buy on dips and hold for the next decade of aerospace/defense expansion.

Actionable Takeaway: Accumulate RBC Bearings at current levels. Set a $110 stop-loss and target $140+ by Q4 2025.

Risk Disclosure: Investing involves risks. Past performance does not guarantee future results.