Is RBC Bearings the Top Stock to Buy?

In the ever-evolving world of investments, finding the next big stock can be a daunting task. One company that has been catching the eye of investors is RBC Bearings Incorporated. But is it the top stock to buy according to Durable Capital Partners? Let's dive in and find out.

RBC Bearings is a leading manufacturer of highly engineered precision bearings, components, and essential systems for the industrial, defense, and aerospace industries. The company has a strong presence in both the industrial and aerospace/defense markets, with the latter accounting for 33% of its net sales. This diversification is a key factor in its investment potential, as it reduces the company's exposure to downturns in any individual segment.

One of the most compelling aspects of RBC Bearings is its strong financial performance. In the third quarter of fiscal 2025, the company reported net sales of $394.4 million, a 5.5% increase from the same period last year. This growth was driven by a 10.7% increase in the Aerospace/Defense segment and a 2.7% increase in the Industrial segment. The company's gross margin also improved, reaching 44.3% compared to 42.3% in the same period last year. This indicates that RBC Bearings is able to manage costs effectively and maintain pricing power.

The company's profitability is also impressive. In the third quarter of fiscal 2025, net income attributable to common stockholders increased by 39.6% to $56.9 million, and diluted EPS increased by 30.9% to $1.82. This strong profitability is a result of the company's ability to generate significant free cash flow. In the third quarter of fiscal 2025, free cash flow conversion was 127%, indicating that the company is generating more cash from its operations than it is spending on capital expenditures and other investments.

RBC Bearings' strong financial performance is not just a result of its operational efficiency. The company also has a healthy balance sheet. Its debt-to-equity ratio is 34.1%, and its interest coverage ratio is 5.6x. This indicates that the company is able to service its debt obligations comfortably and has a strong financial foundation.

The company's position in the aerospace and defense market is another key factor in its investment potential. The aerospace and defense market is a highly specialized and lucrative market, and RBC Bearings has a leading position in many of the specialized product markets in which it competes. The company's expertise in supplying precision products for commercial, private, and military aircraft, aircraft engines, guided weaponry, space and satellites, vision and optical systems, and military marine and ground applications further solidifies its position in this market.

The company's management has also expressed optimism about the future. Dr. Michael J. Hartnett, Chairman and Chief Executive Officer, stated that "RBC delivered another quarter of strong operational performance with A&D segment sales up 10.7% year over year and Industrial segment sales up 2.7%." This positive outlook from management is an important indicator of the company's future prospects.

In conclusion, RBC Bearings is a strong and profitable company with a healthy balance sheet and a positive outlook for the future. Its strong financial performance, leading market position in the aerospace and defense market, and positive outlook from management make it an attractive stock to buy for investors looking for a top-performing company in the industrial and aerospace/defense sectors. However, as with any investment, it is important to do your own research and consider your own risk tolerance before making a decision.