RBC Bearings: A Deep Dive into Valuation Metrics and Peer Comparisons

RBC Bearings (NYSE: RBC) has emerged as a standout performer in the industrial sector, driven by robust demand in aerospace and defense. However, its valuation metrics raise critical questions about whether its current price reflects sustainable growth or speculative optimism. This analysis combines discounted cash flow (DCF) modeling and peer comparisons to assess RBC’s investment appeal.

RBC Bearings’ Financial Performance and Free Cash Flow

RBC Bearings reported Q2 2025 revenue of $436 million, exceeding estimates by 0.8% and reflecting 7.3% year-over-year growth [1]. Its non-GAAP earnings per share (EPS) of $2.84 also beat expectations by 3.6% [1]. The company’s free cash flow (FCF) margin improved to 23.9% in Q2 2025, up from 21.8% in the same period in 2024 [2]. For the full year 2025, RBC generated $244 million in FCF, a 0.95% increase from 2024, with a 10-year annualized FCF growth rate of 19% [3].

Discounted Cash Flow Analysis

To estimate RBC’s intrinsic value, we project its FCF over a 10-year horizon. Assuming a conservative 5% annual growth rate (aligned with its Q3 2025 guidance of $450 million revenue, 3.8% above estimates [1]), RBC’s FCF would reach approximately $387 million by 2035. Using a 9% discount rate (reflecting the industrial sector’s risk profile and RBC’s 23.2% operating margin [2]), the present value of these cash flows suggests an intrinsic equity value of roughly $10.5 billion. This implies a fair price of around $360 per share, significantly below the current price of $398.71 [4].

Peer Comparison: A Tale of Two Valuations

RBC’s valuation multiples starkly contrast with those of its peers. Its trailing P/E ratio of 48.35 [5] is nearly double the industry average of 26.4x [6]. For context, competitors like ITT (P/E 25.5x) and Lincoln Electric (P/E 26.6x) trade at discounts to RBC despite comparable or stronger cash flow generation. Similarly, RBC’s P/FCF ratio of 46.92 [5] dwarfs Nordson’s 22.41 and Lincoln Electric’s 26.45 [7], indicating the market is paying a premium for RBC’s earnings relative to its cash flow output.

This premium may reflect investor confidence in RBC’s aerospace/defense exposure, which drove a 23.7% revenue surge in Q1 2025 [8]. However, such high multiples leave little margin for error if growth slows or margins compress. For instance, a 10% decline in FCF growth assumptions would reduce the DCF-derived fair value by over $30 per share.

Risks and Considerations

While RBC’s operational efficiency (23.9% FCF margin [2]) is commendable, its valuation hinges on sustained demand in cyclical sectors like aerospace. Geopolitical risks or supply chain disruptions could dampen growth. Additionally, RBC’s P/E ratio is 12% above its 10-year historical average of 44.23 [5], suggesting the stock may be pricing in perfection.

Conclusion

RBC Bearings’ financials are undeniably strong, but its valuation metrics—particularly P/E and P/FCF—appear stretched relative to peers and historical norms. While the company’s aerospace/defense tailwinds are real, the DCF analysis suggests the stock is currently overvalued unless future cash flows grow at rates exceeding 7% annually. Investors seeking margin of safety may find better opportunities in undervalued peers like Nordson or Lincoln Electric, which offer compelling valuations and more conservative price-to-cash-flow ratios.

Source:
[1] RBC Bearings Q2 2025 Earnings Report [https://finance.yahoo.com/news/rbc-q2-deep-dive-aerospace-032631603.html]
[2] RBC Bearings Q2 2025 Free Cash Flow and Operating Margin [https://finance.yahoo.com/news/rbc-bearings-nyse-rbc-q2-121509043.html]
[3] RBC Bearings Historical Free Cash Flow (2010–2025) [https://www.macrotrends.net/stocks/charts/RBC/rbc-bearings/free-cash-flow]
[4] RBC Bearings Stock Price and Valuation Metrics [https://stockanalysis.com/stocks/rbc/statistics/]
[5] RBC Bearings P/E Ratio (August 2025) [https://fullratio.com/stocks/nyse-rbc/pe-ratio]
[6] Peer Average P/E Ratio (Industrial Sector) [https://simplywall.st/stocks/us/capital-goods/nyse-rbc/rbc-bearings/valuation]
[7] Nordson and Lincoln Electric P/FCF Ratios [https://macrotrends.net/stocks/charts/NDSN/nordson/price-fcf; https://stockanalysis.com/stocks/leco/financials/ratios/]
[8] RBC Bearings Q1 2025 Aerospace/Defense Revenue Growth [https://investor.rbcbearings.com/news-releases/news-release-details/rbc-bearings-incorporated-announces]