RBC Bearings: A Smooth Operator in High-Margin Aerospace Markets

The aerospace and defense industries are on a collision course with two powerful forces: surging global infrastructure spending and the reshoring of supply chains to secure critical manufacturing. RBC Bearings Incorporated (NASDAQ: ROLL) has positioned itself as a prime beneficiary of both trends, leveraging its expertise in precision bearings to capture outsized returns in a niche market. With margins outpacing peers and a backlog signaling sustained demand, this stock deserves a closer look for investors seeking exposure to high-margin industrial plays.

Dominance in High-Margin Aerospace Markets

RBC Bearings' Aerospace/Defense segment has been the engine of its growth, delivering 20.7% annual revenue growth in fiscal 2024 and a 23.7% jump in Q1 2025 to $149.1 million. This segment's margins are staggering: gross margins hit 45.3% in Q1 2025, far above the industry's typical 35% range. The company's focus on highly engineered bearings for regulated industries—think jet engines, fighter jets, and satellite systems—creates a moat against competition.

Why this matters: RBC isn't just selling bearings; it's supplying mission-critical components where failure isn't an option. This specialization allows it to command premium pricing, especially in defense programs like the U.S. F-35 fighter jet, where contracts are long-term and demand is inelastic.

Benefiting from Supply-Chain Reshoring Trends

Global reshoring initiatives—driven by geopolitical risks and the need for domestic manufacturing—are a tailwind for U.S.-based RBC. Companies in sectors like aerospace and defense are prioritizing suppliers with domestic production capacity, reducing reliance on Asian manufacturers. RBC's U.S. facilities, which produce 85% of its bearings, are strategically positioned to capitalize on this shift.

The company's backlog of $726.1 million as of March 2024 (up 9% year-over-year) reflects this demand. Analysts note that reshoring adds $50–100 million in annualized revenue potential for RBC, as it wins contracts to replace offshore suppliers.

Infrastructure and Defense Spending Tailwinds

Two macro trends are supercharging demand:
1. Defense spending: U.S. defense budgets are projected to grow at 5–7% annually through 2030, with a focus on modernizing fighter jets and satellites. RBC's bearings are integral to these systems.
2. Commercial aerospace recovery: Post-pandemic air travel demand is driving $130 billion in annual commercial aircraft orders, with airlines upgrading fleets.

Even in the Industrial segment—which dipped temporarily in 2024 due to construction softness—RBC maintains an 80%+ market share in certain bearings categories, suggesting resilience in cyclical downturns.

Risks to Consider

• Supply chain volatility: Raw material costs for steel and ceramics remain a wildcard.
• Industrial segment drag: While temporary, a prolonged slowdown in construction/energy could pressure margins.
• Margin dilution: As RBC scales, operational efficiencies might plateau.

Investment Thesis: A Buy with a Long Horizon

RBC's valuation looks rich at 17.99x forward EV/EBITDA, but this reflects its premium margins and structural growth drivers. Catalysts include:
- The Q2 2025 guidance of $395–405 million in sales, implying 2.4–5% YoY growth.
- A $5.7 million annual net income boost from converting preferred stock in late 2024.
- 2025–2030 CAGR of 8–10% fueled by defense and aerospace secular trends.

Final Take

RBC Bearings is more than a bearings company—it's a high-margin industrial powerhouse riding twin megatrends: reshoring and infrastructure spending. While valuation is elevated, the stock's margin resilience, backlog strength, and strategic focus on regulated markets justify a “Buy” rating for investors with a 3–5-year horizon. For the risk-tolerant, this is a rare play on a niche with pricing power and geopolitical tailwinds.

Investors should monitor Q2 2025 results and any supply chain disruptions affecting margins. A dip below $115 could present a better entry point.