Morningstar Report-636d1777e26a17cb5799157d

Morningstar Equity Analyst Report | Report as of 1 Jul 2023 05:48, UTC | Reporting Currency: USD | Trading Currency: USD
| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22
Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC
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Last Price Fair Value Estimate Price/FVE Market Cap Economic Moat Moat Trend Uncertainty Capital Allocation ESG Risk Rating Assessment1
329.45 USD 310.00 USD 1.06 37.85 USD Bil Wide Stable Medium Standard ;;;;;
30 Jun 2023 7 Jun 2023 05:00, UTC
30 Jun 2023 26 Jan 2023 23:38, UTC
Price vs. Fair Value
Last Close: 329.45

400 Fair Value: 310.00
26 Jan 2023 23:38, UTC
300 Over Valued

Under Valued
200
100
0
2018 2019 2020 2021 2022 YTD
0.89 1.16 1.07 1.27 0.84 1.06 Price/Fair Value
-21.50 37.29 25.79 40.82 -24.86 28.82 Total Return %
Morningstar Rating
Total Return % as of 30 Jun 2023. Last Close as of 30 Jun 2023. Fair Value as of 26 Jan 2023 23:38, UTC.
Contents
Business Description Rockwell Will Still Benefit From Customer Needs to Drive
Business Strategy & Outlook (28 Apr 2023)
Bulls Say / Bears Say (28 Apr 2023) Better Efficiency and Productivity
Economic Moat (28 Apr 2023)
Fair Value and Profit Drivers (28 Apr 2023)
Business Strategy & Outlook Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023
Risk and Uncertainty (28 Apr 2023)
We view Rockwell as the highest quality automation player on the west side of the Atlantic based on
Capital Allocation (28 Apr 2023)
Analyst Notes Archive quality, breadth of offerings, and shrewd strategic partnerships. Today, it’s one of the best-in-breed
Financials competitors seeking to gain a stronger foothold where technology meets traditional manufacturing,
Appendix which Rockwell deems the Connected Enterprise.
Research Methodology for Valuing Companies
Rockwell’s signature platform in this strategy is Logix, which consists of programmable controllers and a
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The primary analyst covering this company does not own its stock. First, Logix can perform multiple automation applications, like discrete (automotive, for example),
The ESG Risk Rating Assessment is a representation of Sustainalytics’ ESG Risk
1 process (chemicals), and hybrid (pharmaceuticals) on a single platform. Most competitors pursue these
Rating.
automation applications through a piecemeal mix of hardware and firmware platforms.
Second, by using a single, easy-to-use platform, Logix reduces training costs and maintenance expenses
as well as makes it easier to communicate across different manufacturing cells. We believe training
costs will become a greater consideration as technology inevitably becomes increasingly integrated into
manufacturing facilities. Ultimately, workers will need to be comfortable with that technology, which
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Morningstar Equity Analyst Report | Report as of 1 Jul 2023 05:48, UTC | Reporting Currency: USD | Trading Currency: USD | Exchange: NEW YORK STOCK EXCHANGE, INC. Page 2 of 22
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Sector Industry can become complicated if they’re forced to learn multiple platforms.
Specialty Industrial
p Industrials
Machinery
Third, because Logix works with third-party applications, customers can make incremental
Business Description
improvements to their facilities without incurring the disruption of an expensive system overhaul. We
Rockwell Automation is a pure-play automation
competitor that is the successor entity to Rockwell
believe this should allow for cheaper installation and scale-up costs.
International, which spun off its former Rockwell Collins
Finally, like other automation counterparts, the Logix platform offers customers the opportunity to run
avionics segment in 2001. As of fiscal 2021, the firm
operates through three segments--intelligent devices, analytics on the cloud, allowing for improved asset utilization as well as lower total cost of ownership.
software and control, and lifecycle services. Intelligent Predictive maintenance further allows for reduced enterprise risk, while analytics helps customer
devices contains its drives, sensors, and industrial products get to market faster through optimized throughput.
components, software and control contains its
information and network and security software, while Ultimately, we believe the value offered by solutions like independent cart technology and partnerships
lifecycle services contains its consulting and with Sensia and PTC, combined with acquisitions, should allow the firm to remain a premium player in a
maintenance services as well as its Sensia JV with
growing industry.
Schlumberger.
Bulls Say Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

u Rockwell is the only automation competitor that integrates discrete, process, and hybrid manufacturing
in a single, easy-to-use platform.

u Newer initiatives like digital twin and augmented reality, as well as software subscription services that
deliver predictive analytics should drive higher growth compared with historical results.
u Less than 20% factories are connected, and most insights that drive greater throughput and efficiency
are now made "at the edge," or closer to the manufacturing floor.
Bears Say Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

u Rockwell’s stock is priced for perfection, and it's still a cyclical business that's heavily driven by
industrial production.
u Rockwell's partnerships mean that it's sacrificing upside in both process and in the cloud as it's splitting
the pie with Schlumberger and PTC.

u Rockwell has an insufficient breadth of product offering in the industrial Internet of Things race due to
underinvesting in capital expenditures for the sake of protecting profitability.
Economic Moat Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

We believe Rockwell Automation benefits from a wide economic moat thanks to intangible assets and
switching costs. Among industrials, we believe wide-moat firms like Rockwell have a large installed
base of highly engineered, mission-critical equipment deeply integrated into complex customer
processes. In our view, customers can't overhaul the equipment sold by wide-moat firms for long
periods of time without incurring prohibitively expensive downtime. In Rockwell's case, certain pieces of
customer equipment have been installed for over 30 years.
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Competitors
Rockwell Automation Inc ROK Emerson Electric Co EMR Honeywell International Inc HON Siemens AG SIE
Fair Value Fair Value Fair Value

Last Close
103.00 225.00 160.00
329.45 Uncertainty : Medium Uncertainty : Medium Uncertainty : Medium
Fair Value Last Close Last Close
Last Close
310.00 207.50 152.54
Uncertainty : Medium 90.39
Economic Moat Wide Wide Wide Narrow

Moat Trend Stable Stable Stable Stable
Currency USD USD USD EUR
Fair Value 310.00 26 Jan 2023 23:38, UTC 103.00 12 Apr 2023 18:11, UTC 225.00 27 Apr 2023 19:59, UTC 160.00 10 Feb 2023 16:56, UTC
1-Star Price 418.50 139.05 303.75 216.00
5-Star Price 217.00 72.10 157.50 112.00
Assessment Fairly Valued 30 Jun 2023 Under Valued 30 Jun 2023 Under Valued 30 Jun 2023 Fairly Valued 30 Jun 2023
Morningstar Rating QQQ30 Jun 2023 21:16, UTC QQQQ30 Jun 2023 21:16, UTC QQQQ30 Jun 2023 21:16, UTC QQQ30 Jun 2023 23:47, UTC
Analyst Joshua Aguilar, Senior Equity Analyst Joshua Aguilar, Senior Equity Analyst Joshua Aguilar, Senior Equity Analyst Matthew Donen, Equity Analyst
Capital Allocation Standard Standard Exemplary Exemplary
Price/Fair Value 1.06 0.88 0.92 0.95
Price/Sales 4.57 2.62 3.92 1.61
Price/Book 11.99 4.55 8.16 2.67
Price/Earning 29.00 18.33 26.94 20.28
Dividend Yield 1.41% 2.30% 1.96% 2.82%
Market Cap 37.85 Bil 51.66 Bil 138.10 Bil 120.89 Bil
52-Week Range 192.90—331.40 72.41—99.65 166.63—220.96 93.67—167.00
Investment Style Mid Growth Large Core Large Core Large Growth
According to competitors, Rockwell is historically one of two powerhouses (the other is multi-industrial
conglomerate Siemens) in what is known as the “discrete” automation business. Discrete
manufacturers focus on assembling highly engineered components into more valuable final product
configurations (for example, cars on a factory assembly line). Other competitors like Emerson Electric are
more dominant in “process” automation, which refers to manufacturing operations that convert highly
variable raw material into consistent and quality finished goods using formulations or recipes (for
example, chemicals and oil derivatives). Unlike process manufacturing, the outcome of discrete
manufacturing can be reversed since discrete manufacturing employs standard parts and components.
For example, a manufacturer can't extract dye from a paint mix like a piston in an automobile engine.
Additionally, another difference is that a programmable logic controller (PLC), which is primarily
associated with discrete manufacturing, is used to control a specific component, machine, or process,
while a distributed control system (DCS) controls multiple functions in a flow and is commonly
associated with process manufacturing. Moreover, while both types of manufacturing require very high
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levels of sophistication, discrete offerings tend to emphasize after-the-fact (as opposed to real-time)
statistical analysis from key performance indicators, financials, and data from production assets to drive
continuous improvement.
Given their respective historical core competencies, both Rockwell and Emerson face similar challenges
but from opposite ends of the spectrum as they attempt to move into what is referred to as the “hybrid”
space--or a mixture of both discrete and process manufacturing, as is seen in the pharmaceutical
industry. According to one expert, who we find credible given that he worked for both companies, while
Rockwell started with smaller control systems, it has been competing for larger plant systems while
Emerson has been trying to scale down to smaller control systems. From our understanding, the hybrid
landscape is currently controlled by a few players (including Rockwell, Emerson, Schneider, ABB, and
Siemens), and we suspect that there is room for increased share gains from both through eventual
consolidation.
Today, portions of the industrial equipment industry potentially face disruption from new technologies,
including a combination of advanced robotics, 3D printing, connected devices, and new data processing
and analytic techniques commonly referred to as the industrial "Internet of Things." According to
General Electric representatives, following productivity gains in the 1980s and 1990s from techniques
popularized by firms like Toyota (that is, lean manufacturing and six sigma), productivity gains have
recently only averaged a mere .5% per year. Smart devices offer the promise of helping manufacturing
customers make better operational decisions, including improving manufacturing lead times, making
better maintenance, repair, and overhaul, or MRO, spending decisions, improving environmental and
regulatory compliance as well as responding to cybersecurity threats. Yet, according to Rockwell's
representatives, less than 20% of factories were connected as of 2017.
In response, Rockwell is one of a few industrial players and one of the only remaining pure-play
automation competitors focusing on creating a single, common software platform that combines a
customer's traditional manufacturing plant floor operations with its information technology functions
(that is, “The Connected Enterprise”). The logic is that by integrating both plant assets with the rest of
the enterprise value chain, customers can reduce their time to market, lower their total cost of
ownership, improve their asset utilization, and better manage their enterprise risks. While the firm does
not build robots, it helps customers achieve these objectives by marrying differentiated technology,
including routers, switches, and sensors, with deep technical know-how to remotely monitor assembly
lines, reduce energy costs, forecast outages, and strive toward continuous production. Rockwell's
differentiated technology is no doubt helped by the firm spending about 5.7% of its sales on research
and development as of 2019, or approximately 3 points or so more than the median R&D spend to sales
ratio in our diversified industrials coverage. Even so, over the past five year, Rockwell impressively
yielded $8.25 in returns on research capital (gross profit over prior year R&D expenditures), by far one of
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the highest in our diversified industrials coverage, even as the firm ramped up its R&D spend relative to
the prior five-year cycle.
The firm's signature platform in its goal to merge operational technology with information technology is
Logix. Logix supports both discrete and process manufacturing on the same hardware platform with the
same software programming environment. The Logix architecture is scalable because it is built on an
open standard communication protocol. In other words, it's interoperable with both Rockwell's
intelligent motor control offerings (for example, products like electronic motor starters, relays, and
timers offered through its Control Products & Solutions segment) as well as third-party applications.
Ultimately, we suspect this should allow customers to implement Rockwell's architecture in a less costly
manner relative to competitors.
Moreover, we think Logix's single platform creates a stickier offering relative to competitors. The
advantage of the Logix platform is that manufacturing customers are only obligated to teach employees
once on both hardware and software with an easy-to-use package. We think this is important because
as technology plays an increasing role in the industrial Internet of Things race, having workers trained
and comfortable with that technology becomes increasingly critical. Consequently, this allows for
reduction in both training and maintenance expenses, and makes it easier to communicate across the
different cells of a manufacturing facility. In our view, the lack of a single, easy-to-use alternative
augments the firm's switching costs since we understand most competitors offer multiple applications
within a customer's enterprise.
Additional evidence of the firm's mission-critical services can be gleaned from various examples. An
International Paper mill, for example, has a dedicated phone line directly connected to Rockwell
engineers, allowing them to spot problems and instruct workers how to fix any operational issues before
they may even arise. Without this help from Rockwell, International Paper would be forced to hire
another engineer. While International Paper representatives admit the service is expensive, they believe
the cost is justified.
Other more recent examples of both the firm's technological differentiation and the mission criticality of
its products and services can be identified in the consumer package good space. Kraft-Heinz' Ore-Ida
brand wanted more yield out of its lines, including in cleaning, prepping, frying, freezing, and
packaging. Kraft-Heinz produces 800 million pounds of processed potato products and a 1% increase in
yield greatly enhances its profitability. While Kraft-Heinz was targeting a 5% increase in yield, Rockwell
used an analytic software package that was implemented in real time, examined multiple variables,
optimized a complex process, and ultimately improved yield by 10%. The improved yield over a two-year
period justified not only the analytic installation, but also the entire upgrade of the equipment, and
avoided the capital expense of an additional piece of equipment on top of the cost of the upgrades.
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Ultimately, we calculate returns on invested capital in the mid-30s between Rockwell's prior 10-year
historical returns and the future five-year projected returns (the difference in management's calculations
lie in what we categorize as financial assets in the firm's "other" assets on the books), which is the
highest in our diversified industrials coverage. Notably, at its nadir in 2009, post-financial crisis,
Rockwell's ROICs including goodwill only dipped to just over 16%, or just over 750 basis points above
our estimated cost of capital, even though its performance is highly correlated to global industrial
production, which was severely hampered from the crisis. As such, we believe it's more likely than not
Rockwell can continue to out-earn its cost of capital over the next 20 years.
Fair Value and Profit Drivers Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023
Rockwell Automation had a great fiscal second quarter, but nothing in its latest results alters our long-
term fundamental view. In fact, our long-term midcycle operating margin remains unchanged. Perhaps
more importantly, also relatively unchanged is our view of cumulative economic profit generation during
our explicit forecast.
We did, however, pull forward our revenue estimates on the strength of Rockwell’s year-to-date
performance and management’s upwardly revised guide. Yet, our aggregate, through-the-cycle revenue
expectation for Rockwell remains unchanged, both on an organic and acquisition basis. Therefore, we
maintain our $310 fair value estimate.
Over the long term, we still model mid-single-digit organic sales growth (plus a 1% annual sales
contribution from acquisitions), incremental margins in the lower-30s, lower-double-digit EPS growth,
and free cash flow conversion greater than 100%. We value Rockwell at nearly 26 times our adjusted
EPS expectations of $12.16 for fiscal 2023.
Demand for Rockwell's products and services remains very strong. Orders don’t just dissipate from
mission-critical industrials like Rockwell given its large installed base of equipment and complete suite
of solutions--key durable competitive advantages. Furthermore, Rockwell’s secular growth trends
remain intact, including increasing automation and digitization of manufacturing operations, which we
expect will only accelerate from historical experience. Additionally, we think Rockwell can continue to
pull on its price lever given its strong intangible assets.
Over the long run, we think Rockwell's future is bright, particularly in the area of analytics closer to the
plant floor where it's more likely to see recurring, subscription-type revenue. We expect Rockwell will
continue as a leader in the convergence of IT and OT.
A majority of factories are still not fully connected, based on industry reports. In our view, the global
automation market will grow based on customer need to drive productivity and efficiency gains.
Furthermore, we think Rockwell will continue to benefit from technologies like independent cart
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technology, digital twin, augmented reality, and cybersecurity, among others. Rockwell's automation
equipment can improve a customer's asset utilization and total cost of ownership. Once in a factory,
Rockwell stands to benefit from decades of higher-margin aftermarket revenue. Verticals served by
Rockwell specifically seek these types of efficiency gains.
Finally, we believe Rockwell has a strong breadth of offering thanks to partnerships with PTC and
Sensia. For instance, Sensia's offerings helps customers reduce the breakeven point to produce a barrel
of oil.
Risk and Uncertainty Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023
Our Morningstar Uncertainty Rating for Rockwell Automation is Medium.
We think Rockwell has two primary risks--first, the company’s results are positively
correlated to industrial productivity, both in the United States and internationally. This risk is amplified
because unlike other industrials, which operate in multiple industries (that is, are diversified), Rockwell
is a pure-play automation company with mostly short-cycle sales activities and has few long-cycle sales
activities to offset its exposure. This was particularly evident in the mini industrial and manufacturing
recession from 2015-16, which no doubt contributed to headwinds in 2016 as evidenced by the firm’s
2016 negative organic sales growth.
Second, it’s unclear as to whether Rockwell will possess the requisite domain expertise in process
manufacturing to become the preferred provider for an integrated discrete, process, and hybrid solution.
Rockwell has long touted the process automation opportunity, but we agree with most market observers
who argue that Rockwell lacks the reputation it has in its discrete manufacturing offering given slower
growth in the process space (and from a smaller sales base, to boot). Moreover, a lack of capital
investment could translate to similar challenges in the race to be the preferred vendor of choice in the
industrial Internet of Things race.
Other challenges the firm faces include currency risks (even though the firm does hedge this exposure),
cybersecurity risks, and rapid shifts in technology.
From an environmental, social, and governance, or ESG, standpoint, the biggest potential risks include
environment litigation related to its 13 Superfund sites cited in the firm's 10-K, legacy asbestos
liabilities, potential product recalls of its automation equipment, a possible loss of intellectual property,
and human capital risk given Rockwell's need to attract skilled labor. That said, we consider the fallout
from these risks relative to Rockwell's operations as very low.
Capital Allocation Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023
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We assign Rockwell Automation a Standard capital allocation rating. While Rockwell's balance sheet is
very strong, and we like its partnership strategy and investments, we think any share repurchases in
future would be somewhat dilutive, and arguably believe distributions run a bit on the high side given
its organic opportunity set. Blake D. Moret has been CEO and president of Rockwell since July 1, 2016.
Moret is a longtime veteran of the company. Previously, Moret spearheaded the former Control Products
and Solutions segment as its senior vice president for five years. He started as a salesman back in the
early 1990s, and we think he carries the same passion for his job today as he did then. Under Moret’s
leadership, moreover, the stock has moved meaningfully ahead of the price returns of the Morningstar
US Market Index over the same time horizon.
There’s a lot to like about Moret’s leadership, even on top of the exceptional market returns Rockwell
has garnered during his tenure. For example, Moret oversaw the acquisition of previously private
company, Maverick Technologies. Rockwell has long touted the growth potential of process
manufacturing arguing it allows the firm to expand its addressable market. That said, we agree with
many market observers argue that Rockwell has historically lacked some of the domain expertise (that
is, technical know-how) to take significant share in this space. According to ARC Advisory Group, the
Maverick acquisition enhances the company’s distributed control solution capabilities, which allow a
plant to continue operating in the event a specific section fails, as well as shores up its knowledge gap
in process manufacturing. We find this argument credible.
Under Moret, returns on invested capital have remained strong in what is already the best ROIC
company in our diversified industrial coverage. For over the past 10 years, the board has authorized the
company to continuously raise its dividend, which we think is a testament to its ability to convert
earnings into free cash flow. From 2009 to 2019, average free cash flow (CFO-capital expenditure)
conversion averaged over 125% of earnings on average, and more than doubled earnings in 2018. Free
cash flow conversion was likewise very strong in fiscal 2020 at 119%, and adjusted free cash flow
conversion (free cash flow over adjusted net income) came in at about 103% during fiscal 2021. Though
this number fell to 61% on elevated inventory levels given supply chain disruptions in 2022, we believe
it should revert closer to Rockwell's historical mean by the end of fiscal 2023 (we're estimating about
95% free cash flow conversion for the full year).
However, we have hesitated to award an Exemplary stewardship rating given multiple factors. First and
foremost, we express some modest concerns over how we believe the series of Emerson’s unsolicited
buyout bids were handled. The board decided it was not in the company’s best interest to even engage
in discussions with Emerson. While Emerson handled this poorly by continuing to make additional
unsolicited bids after its initial offer, we still believe it was in the interest of Rockwell’s shareholders for
Rockwell’s board to engage in discussions with Emerson.
Rockwell's board refused to speak with Emerson because: 1) Emerson has historically had a poor track
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record with integrating companies; 2) Emerson’s stock, which constituted a substantial portion of the
deal under each bid scenario, was viewed as poor currency given a recent history of lackluster returns;
and 3) Emerson and Rockwell use different platforms, and the combination would have only made them
bigger, but not competitively differentiated players. While this argument was not without foundation,
Emerson’s final offer was at a considerable premium to our fair value estimate then. Moreover,
Emerson’s bids were a premium to Rockwell’s stock, which most analysts viewed as overvalued at the
time. That said, Rockwell has produced strong results over time, and its partnerships have positioned it
as one of the strongest automation players. We think the firm will demonstrate an increased willingness
to pull on its inorganic lever, and it has done an excellent job doing so over the last few years under
Moret's stewardship.
The board has a remaining authorization of about $1.1 billion of share repurchases as of March 31,
2023, though we'd prefer a pause in repurchases given that the stock trades near our fair value
estimate.
Rockwell announced on Oct. 19, 2020, that CFO Patrick Goris has accepted a position with Carrier. As
we expected, Rockwell hired an external CFO, but we were surprised when CFO Nick Gangestad
returned to the industrials space after he retired from 3M. We think Gangestad will serve as an
important strategic partner to Moret and focus more on increasing annual recurring revenue through
software sales and bolt-on M&A deals.
Analyst Notes Archive
Rockwell Earnings: Robust Backlog Strongly Positions Rockwell for the Remainder of 2023 Joshua
Aguilar, Senior Equity Analyst, 28 Apr 2023
Wide-moat-rated Rockwell Automation had a great fiscal second quarter, but nothing in its latest results
alters our long-term fundamental view. In fact, our midcycle operating margin remains unchanged.
Perhaps more importantly, also relatively unchanged is our view of cumulative economic profit
generation during our explicit forecast.
We did, however, pull forward our revenue estimates on the strength of Rockwell’s year-to-date
performance and management’s upwardly revised guide. Yet, our aggregate, through-the-cycle revenue
expectation for Rockwell remains unchanged, both on an organic and acquisition basis. Therefore, we
maintain our $310 fair value estimate.
Nonetheless, Rockwell performed sensationally on multiple fronts. Rockwell ripped past our projections
for the quarter. Revenue soared to $2.28 billion and grew a resounding 27% year on year, organically.
The automotive and food and beverage markets were disproportionate contributors, since each grew
40% year on year, and these two end markets represent 10% and 20% of Rockwell’s end market mix,
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respectively.
Independent cart technology, which has been a key part of our thesis ever since Rockwell bought
MagneMotion back in 2016, has helped capture wins in the hybrid automation space in end markets
like food and beverage and life sciences. It’s also helped in semiconductors; though a smaller part of
Rockwell’s sales mix than its food and beverage exposure (semis are about 5% of sales), we highlight
that this vertical grew in the high teens during the quarter.
Semi customers are investing in this solution because its helps increase wafer output and helps them
more efficiently utilize existing fab space. This is a repeat of the broader thesis for automation that it will
help drive better utilization and productivity, leading to greater savings for customers. For instance,
independent cart helps improve operator productivity in certain material handling applications relative
to manual delivery by at least 20%.
Solid Fiscal First Quarter Means Rockwell Bucks Recessionary Trends; We Raise FVE Joshua Aguilar,
Senior Equity Analyst, 26 Jan 2023
Nothing in wide-moat-rated Rockwell Automation's latest results materially alters our long-term view of
the firm. We lift our fair value estimate to $310 from $306, due to time value of money (slightly offset by
a higher share repurchase price assumption). Despite the full-year guidance increase, which we now
incorporate in our model, we aren't making meaningful changes to our long-term assumptions, as we
think the revisions mostly affect the timing of cash flows. Over the long run, we still expect strong mid-
single-digit organic growth, coupled with a 1% contribution from acquisitions. We now expect $8.7
billion of full-year 2023 sales (versus $8.5 billion previously), and $11.11 of adjusted EPS (versus $10.77
previously), around the midpoint of the revised guide.
For the fiscal first quarter, revenue increased 6.7% to $1.98 billion, but nearly 10% on an organic basis.
We consider this result exceptional and believe the market should have given the stock more credit.
Rockwell is one of the few short-cycle industrials bucking the downward earnings revisions trend amid
recessionary headwinds in the economy. Segment operating margins also rose 110 basis points to
20.2%, with good operating leverage, including 84% incrementals in the software and control segment,
by our calculations. Overall incremental margins were better than the core earnings conversion of 30%-
35% embedded in Rockwell's long-term earnings targets, where we model toward the lower end of the
range.
While all segments demonstrated very strong organic growth, software and control rose a resounding
15.5% year on year. Lifecycle services also grew sales by double digits organically. We think the market
continues to underappreciate Rockwell's long-term secular tailwinds that should propel its valuation
further. In fact, it's possible that the guide is conservative, though we want to balance our optimism
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with the tough macroeconomic environment.
Rockwell’s Market Selloff a Gross Overreaction; We Raise Fair Value Estimate by Just Under 4%
Joshua Aguilar, Senior Equity Analyst, 3 Nov 2022
We were surprised by the market’s negative reaction to Rockwell’s fiscal fourth-quarter and 2023
results. In fact, Rockwell’s reported revenue during the fourth quarter was nearly lineball accurate with
our projections, while the firm outperformed our segment operating margins by 140 basis points.
Adjusted EPS did fall below expectations, though GAAP EPS outperformed. Furthermore, sales guidance
came ahead of our expectations, though segment operating margin and adjusted EPS guidance were
right in line with what we earmarked. We raise our fair value estimate to $306 from $295, partially due
to time value of money and partially due to our revised sales outlook.
We think the market punished the stock due to Rockwell’s poor adjusted free cash flow conversion of
61%, by our math. There’s no doubt that inventory levels spiked relative to prepandemic levels, though
we get very different numbers for days on hand than management (lower-80s versus mid- to upper-50s
prior to the pandemic). However, we’re not particularly concerned by these clearly short-term
headwinds, and we prefer this dynamic compared with the weak earnings print in the fiscal second
quarter.
Adjusted free cash flow conversion is currently muted because Rockwell has had to build inventory to
meet customer demand for orders. This is a far better scenario than not having sufficient raw materials,
which is the situation Rockwell faced two quarters ago when it faced multiple component shortages,
particularly in products with significant hardware content. That was worse because Rockwell then ran
the risk of increased order cancellations if it didn’t increase its delivery output. The market was
expecting inventory reductions, which didn’t materialize during the quarter, and punished the stock
accordingly. This is short-termism at its worst, particularly since we expect free cash flow conversion
will slog its way back to just south of normalized levels in fiscal 2023.
Rockwell Defies the Market’s Dour Expectations; We Raise FVE by 2% Joshua Aguilar, Senior Equity
Analyst, 28 Jul 2022
After reviewing wide-moat Rockwell Automation's fiscal third-quarter results, we bump up our fair value
estimate to $295 from $290. The 2% raise was due to time value of money and a nominal earnings
guidance raise on lower expected taxes. We continue to model on the lower end of the revenue and
adjusted EPS guidance ranges ($7.74 billion expected sales and $9.32 in expected adjusted EPS). That
said, we still believe the stock has some persistent undervaluation, even with the near 10% price
appreciation during the trading day. Our fair value implies over 20% upside in the name.
For the quarter, revenue rose to $1.97 billion, or 6.5% year on year, including just over 7% on an organic
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TM TM
30 Jun 2023 7 Jun 2023 05:00, UTC
30 Jun 2023 26 Jan 2023 23:38, UTC
basis. Rockwell’s software and control segment, which goes to market as “FactoryTalk,” was the hero
during the quarter. Its sales rose 19% year on year, or nearly 13.5% on an organic basis. The segment
also managed to expand segment operating margins, thanks to higher volumes and positive price/cost,
by a resounding 620 basis points year on year (and even better, sequentially) to 31.4%.
While Rockwell is finally seeing some modest improvement in its supply chain during the fiscal third
quarter, both sales volume and mix continue to face component shortages. That’s really affected the
firm’s intelligent devices segment, which is trending below our expectations. Nonetheless, Rockwell
garnered some additional wins in other parts of the business, including Flex and Plex, that should bring
investors some optimism. In addition to new customers, Flex can also count some expansion deals,
which collectively lead to double-digit sales growth. Looking forward, there are broad-based areas of
end-market strength, including in oil and gas, chemicals, and life sciences.
We were pleased with Rockwell’s third-quarter results, and our long-term thesis is playing out nicely,
particularly given Rockwell’s proven ability to extract positive price/cost (price rose 3.5% during the
quarter).
Rockwell’s Battered Shares a Long-Term Opportunity for Patient Investors Joshua Aguilar, Senior
Equity Analyst, 3 May 2022
Wide-moat Rockwell Automation had a rough fiscal second quarter and meaningfully whiffed on our
expectations, but nothing in its latest results alters our long-term, fundamental view of the firm. While
we lowered our full-year fiscal 2022 assumptions on the cusp of disappointing results and
management’s lowered guidance, time value of money fully offset these effects in our model. Therefore,
we maintain our $290 fair value estimate.
Given the extent of the supply chain disruptions and inflationary headwinds on Rockwell’s business, as
well as the long putt toward the midpoint of 2022 sales and earnings guidance, we model toward the
lower end of the revised guide. We now expect nearly $7.8 billion of sales (including organic growth of
about 10%), segment operating margins of 19.5%, adjusted EPS of $9.20, and free cash flow conversion
of about 85%. Nonetheless, over the long term, we still model mid-single-digit-plus organic sales
growth, incremental margins in the lower-30s, lower-double-digit EPS growth, and free cash flow
conversion of just over 100%.
Rockwell has been struggling to fill orders due to multiple component shortages, particularly in products
with significant hardware content. Despite the weak quarter, one thing that gives us confidence is
Rockwell’s order strength, demonstrating that demand is strong, and that recent problems are a
symptom of the current environment. Therefore, we don’t think revenue is lost but merely pushed out to
the back half of the year and into fiscal 2023. Even so, organic sales still grew just over 1%. And Plex,
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30 Jun 2023 7 Jun 2023 05:00, UTC
30 Jun 2023 26 Jan 2023 23:38, UTC
which Rockwell acquired in late 2021, has picked up some significant automotive wins and is partnering
with Microsoft Azure in Europe. Finally, Fiix, which Rockwell acquired in early 2021, grew annual
recurring revenue over 40%, while Rockwell’s overall organic ARR grew by 17%.
Despite Supply Chain Disruptions and a Stock Sell-Off, We Lift Our Rockwell FVE by 5% Joshua
Aguilar, Senior Equity Analyst, 27 Jan 2022
Supply chain disruptions continue to be the story in the industrials sector, and we think the tradeoff in
wide-moat rated Rockwell’s stock following fiscal first-quarter 2022 earnings reflects the market’s
bearish sentiment. These supply chain concerns prompted management to maintain guidance, which
we think contributed to the stock’s sell-off during the trading day, particularly as Rockwell’s valuation
returned to more rational levels in the two weeks prior to this print. Nonetheless, we think there is some
conservatism baked into the guide, despite many industrial CEOs describing the current operating
environment as the most difficult in their lifetimes.
While we understand it’s a struggle for all players to fill orders, Rockwell’s strong demand, its
historically solid execution, and its short-cycled nature, lead us to believe that shareholders may not
have to wait as long to see results flow to the bottom line as more long-cycled competitors. Therefore,
we raise our fair value estimate to $290 per share, from $275 previously (about a 5% raise). The primary
driver of the raise is the above-guidance revenue we’re now modeling in for full-year 2022, which
should truncate the time investors can expect Rockwell to become a $9 billion company.
We think investors should cheer the recent sell-off because Rockwell’s strong operating performance,
secular growth drivers, and multiple reinvestment opportunities mean the stock regularly trades at a
valuation premium. The primary metric we’re focused on right now is the projected orders the firm
expects to receive in fiscal 2022, which should have some spillover benefits in fiscal 2023. Total orders
grew by a resounding 40%-plus this fiscal first quarter to over $2.5 billion alone, implying a book-to-bill
(orders divided by revenue) of about 1.3 for Rockwell’s overall business. K
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Competitors Price vs. Fair Value
Emerson Electric Co EMR
Fair Value: 103.00

12 Apr 2023 18:11, UTC
200
Last Close: 90.39
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
0.74 1.03 0.98 0.87 0.87 0.88 Price/Fair Value
-11.47 30.93 8.02 18.20 5.54 -4.82 Total Return %
Morningstar Rating
Total Return % as of 30 Jun 2023. Last Close as of 30 Jun 2023. Fair Value as of 12 Apr 2023 18:11, UTC.
Honeywell International Inc HON
Fair Value: 225.00

27 Apr 2023 19:59, UTC
200
Last Close: 207.50
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
0.88 1.06 1.18 0.93 0.91 0.92 Price/Fair Value
-8.61 36.51 22.22 -0.20 4.68 -2.21 Total Return %
Morningstar Rating
Total Return % as of 30 Jun 2023. Last Close as of 30 Jun 2023. Fair Value as of 27 Apr 2023 19:59, UTC.
ß
Siemens AG SIE
Fair Value: 160.00

10 Feb 2023 16:56, UTC
200
Last Close: 152.54
150 Over Valued
Under Valued
100
50
0
2018 2019 2020 2021 2022 YTD
0.76 0.96 1.00 1.17 0.89 0.95 Price/Fair Value
-12.97 23.58 5.66 32.11 -13.16 20.08 Total Return %
Morningstar Rating
Total Return % as of 30 Jun 2023. Last Close as of 30 Jun 2023. Fair Value as of 10 Feb 2023 16:56, UTC.
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TM TM
30 Jun 2023 7 Jun 2023 05:00, UTC
30 Jun 2023 26 Jan 2023 23:38, UTC
Morningstar Historical Summary

Financials as of 31 Mar 2023
Fiscal Year, ends 30 Sep 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
Revenue (USD Mil) 6,352 6,624 6,308 5,880 6,311 6,666 6,695 6,330 6,997 7,760 4,256 8,351
Revenue Growth % 1.5 4.3 -4.8 -6.8 7.3 5.6 0.4 -5.5 10.5 10.9 16.1 14.1
EBITDA (USD Mil) 1,187 1,346 1,354 1,187 1,283 1,568 1,151 1,412 1,811 1,436 1,009 1,940
EBITDA Margin % 18.7 20.3 21.5 20.2 20.3 23.5 17.2 22.3 25.9 18.5 23.7 23.2
Operating Income (USD Mil) 1,036 1,184 1,197 1,008 1,110 1,297 1,362 1,115 1,218 1,335 775 1,574
Operating Margin % 16.3 17.9 19.0 17.2 17.6 19.5 20.3 17.6 17.4 17.2 18.2 18.8
Net Income (USD Mil) 756 827 828 730 826 536 696 1,023 1,358 932 684 1,321
Net Margin % 11.9 12.5 13.1 12.4 13.1 8.0 10.4 16.2 19.4 12.0 16.0 15.8
Diluted Shares Outstanding (Mil) 141 140 136 131 130 127 119 117 117 117 116 116
Diluted Earnings Per Share (USD) 5.36 5.91 6.09 5.56 6.35 4.21 5.83 8.77 11.58 7.97 5.90 11.36
Dividends Per Share (USD) 1.98 2.32 2.60 2.90 3.04 3.51 3.88 4.08 4.28 4.48 2.36 4.60
Valuation as of 30 Jun 2023

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Price/Sales 2.6 2.3 2.2 3.0 4.0 2.9 3.6 4.6 5.8 3.9 4.6 4.6
Price/Earnings 22.0 18.8 16.8 24.2 31.0 35.7 34.7 28.6 30.1 32.4 29.0 29.0
Price/Cash Flow 16.4 15.0 11.7 18.6 24.7 14.7 20.4 26.1 32.4 36.5 38.3 38.3
Dividend Yield % 1.77 2.15 2.61 2.18 1.59 2.42 1.94 1.65 1.24 1.76 1.41 1.41
Price/Book 6.3 5.7 6.0 8.7 9.4 11.1 58.1 28.3 16.9 10.8 12.0 12.0
EV/EBITDA 13.4 10.8 9.5 14.2 19.1 12.0 21.5 21.8 24.4 23.2 0.0 0.0
Operating Performance / Profitability as of 31 Mar 2023
Fiscal Year, ends 30 Sep 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 YTD TTM
ROA % 13.2 13.7 13.1 10.8 11.6 8.0 11.2 15.3 15.1 8.7 6.1 11.9
ROE % 34.0 31.5 33.7 34.3 35.4 25.0 68.8 142 79.4 36.3 23.2 45.5
ROIC % 24.1 22.8 23.7 19.0 20.6 14.6 25.2 36.7 28.3 15.1 10.2 19.5
Asset Turnover 1.1 1.1 1.0 0.9 0.9 1.0 1.1 0.9 0.8 0.7 0.4 0.8
Financial Leverage
Fiscal Year, ends 30 Sep 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Recent Qtr TTM
Debt/Capital % 25.9 25.3 39.9 43.2 31.8 43.1 82.9 68.6 61.3 53.5 49.7 —
Equity/Assets % 44.2 42.7 35.2 28.0 37.2 25.8 6.6 14.1 22.3 25.3 27.5 —
Total Debt/EBITDA 0.9 0.9 1.1 1.7 1.4 1.1 2.0 1.7 2.4 2.9 4.3 —
EBITDA/Interest Expense 19.5 22.7 21.3 16.6 16.8 21.5 11.7 13.6 19.1 11.7 14.4 14.5
Morningstar Analyst Historical/Forecast Summary as of 27 Apr 2023

Financials Estimates Forward Valuation Estimates
2021 2022 2023 2024 2025
Fiscal Year, ends 09-30-2022 2021 2022 2023 2024 2025
Price/Sales 4.9 3.2 4.2 3.9 3.6
Revenue (USD Mil) 6,997 7,760 8,935 9,814 10,455 Price/Earnings 31.1 22.6 27.1 23.5 20.9
Revenue Growth % 10.5 10.9 15.1 9.8 6.5 Price/Cash Flow 29.9 36.3 28.7 23.5 20.2
EBITDA (USD Mil) 1,408 1,574 2,039 2,259 2,505 Dividend Yield % 1.5 2.1 1.4 1.4 1.8
EBITDA Margin % 20.1 20.3 22.8 23.0 24.0 Price/Book 14.4 9.2 11.7 9.3 7.8
EV/EBITDA 25.3 18.3 20.5 18.5 16.7
Operating Income (USD Mil) 1,218 1,335 1,731 1,920 2,145
Operating Margin % 17.4 17.2 19.4 19.6 20.5
Net Income (USD Mil) 1,106 1,111 1,400 1,598 1,785
Net Margin % 15.8 14.3 15.7 16.3 17.1
Diluted Shares Outstanding (Mil) 117 117 115 114 113
Diluted Earnings Per Share(USD) 9.45 9.52 12.16 13.99 15.73
Dividends Per Share(USD) 4.28 4.48 4.56 4.64 5.87
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Appendix
Historical Morningstar Rating
Rockwell Automation Inc ROK 30 Jun 2023 21:16, UTC
Dec 2023 Nov 2023 Oct 2023 Sep 2023 Aug 2023 Jul 2023 Jun 2023 May 2023 Apr 2023 Mar 2023 Feb 2023 Jan 2023
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Emerson Electric Co EMR 30 Jun 2023 21:16, UTC
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Honeywell International Inc HON 30 Jun 2023 21:16, UTC
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Siemens AG SIE 30 Jun 2023 23:47, UTC
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QQQQ QQQQ QQQQ QQQQ QQQQ QQQ QQQ QQQQ QQQQ QQQQ QQQQ QQQ
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Overview timate of a firm’s cost of capital, or weighted average In this stage, which can last five to 10 years, analysts
At the heart of our valuation system is a detailed projec- cost of capital (or WACC). Without a moat, profits are make full financial statement forecasts, including items
tion of a company’s future cash flows, resulting from our more susceptible to competition. We have identified five such as revenue, profit margins, tax rates, changes in
analysts’ research. Analysts create custom industry and sources of economic moats: intangible assets, switching workingcapital accounts, and capital spending. Based on
company assumptions to feed income statement, balance costs, network effect, cost advantage, and efficient scale. these projections, we calculate earnings before interest,
sheet, and capital investment assumptions into our glob- after taxes (EBI) and the net new investment (NNI) to de-
ally standardized, proprietary discounted cash flow, or Companies with a narrow moat are those we believe are rive our annual free cash flow forecast.
DCF, modeling templates. We use scenario analysis, inde- more likely than not to achieve normalized excess returns
for at least the next 10 years. Wide-moat companies are Stage II: Fade
pth competitive advantage analysis, and a variety of other
those in which we have very high confidence that excess The second stage of our model is the period it will take
analytical tools to augment this process. Moreover, we
returns will remain for 10 years, with excess returns more the company’s return on new invested capital—the re-
think analyzing valuation through discounted cash flows
likely than not to remain for at least 20 years. The longer turn on capital of the next dollar invested (“RONIC”)—to
presents a better lens for viewing cyclical companies,
a firm generates economic profits, the higher its intrinsic decline (or rise) to its cost of capital. During the Stage II
high-growth firms, businesses with finite lives (e.g.,
value. We believe low-quality, no-moat companies will period, we use a formula to approximate cash flows in
mines), or companies expected to generate negative
see their normalized returns gravitate toward the firm’s lieu of explicitly modeling the income statement, balance
earnings over the next few years. That said, we don’t dis-
cost of capital more quickly than companies with moats. sheet, and cash flow statement as we do in Stage I. The
miss multiples altogether but rather use them as support-
length of the second stage depends on the strength of
ing cross-checks for our DCF-based fair value estimates.
When considering a company's moat, we also assess the company’s economic moat. We forecast this period to
We also acknowledge that DCF models offer their own
whether there is a substantial threat of value destruction, last anywhere from one year (for companies with no eco-
challenges (including a potential proliferation of estim-
stemming from risks related to ESG, industry disruption, nomic moat) to 10–15 years or more (for wide-moat com-
ated inputs and the possibility that the method may miss
financial health, or other idiosyncratic issues. In this con- panies). During this period, cash flows are forecast using
shortterm market-price movements), but we believe these
text, a risk is considered potentially value destructive if its four assumptions: an average growth rate for EBI over the
negatives are mitigated by deep analysis and our
occurrence would eliminate a firm’s economic profit on a period, a normalized investment rate, average return on
longterm approach.
cumulative or midcycle basis. If we deem the probability new invested capital (RONIC), and the number of years
of occurrence sufficiently high, we would not characterize until perpetuity, when excess returns cease. The invest-
Morningstar’s equity research group (”we,” “our”) be-
the company as possessing an economic moat. ment rate and return on new invested capital decline un-
lieves that a company’s intrinsic worth results from the
til a perpetuity value is calculated. In the case of firms
future cash flows it can generate. The Morningstar Rating
To assess the sustainability of excess profits, analysts per- that do not earn their cost of capital, we assume marginal
for stocks identifies stocks trading at a discount or premi-
form ongoing assessments of the moat trend. A firm’s ROICs rise to the firm’s cost of capital (usually attribut-
um to their intrinsic worth—or fair value estimate, in
moat trend is positive in cases where we think its sources able to less reinvestment), and we may truncate the
Morningstar terminology. Five-star stocks sell for the
of competitive advantage are growing stronger; stable second stage.
biggest risk adjusted discount to their fair values, where-
as 1-star stocks trade at premiums to their intrinsic worth. where we don’t anticipate changes to competitive ad-
vantages over the next several years; or negative when Stage III: Perpetuity
Four key components drive the Morningstar rating: (1) our we see signs of deterioration. Once a company’s marginal ROIC hits its cost of capital,
assessment of the firm’s economic moat, (2) our estimate we calculate a continuing value, using a standard per-
of the stock’s fair value, (3) our uncertainty around that 2. Estimated Fair Value petuity formula. At perpetuity, we assume that any
fair value estimate and (4) the current market price. This Combining our analysts’ financial forecasts with the growth or decline or investment in the business neither
process ultimately culminates in our singlepoint star rat- firm’s economic moat helps us assess how long returns creates nor destroys value and that any new investment
ing. on invested capital are likely to exceed the firm’s cost of provides a return in line with estimated WACC.
capital. Returns of firms with a wide economic moat rat-
ing are assumed to fade to the perpetuity period over a Because a dollar earned today is worth more than a dollar
1. Economic Moat
longer period of time than the returns of narrow-moat earned tomorrow, we discount our projections of cash
The concept of an economic moat plays a vital role not
firms, and both will fade slower than no-moat firms, in- flows in stages I, II, and III to arrive at a total present
only in our qualitative assessment of a firm’s long-term
creasing our estimate of their intrinsic value. value of expected future cash flows. Because we are
investment potential, but also in the actual calculation of
modeling free cash flow to the firm—representing cash
our fair value estimates. An economic moat is a structural
Our model is divided into three distinct stages: available to provide a return to all capital providers—we
feature that allows a firm to sustain excess profits over a
discount future cash flows using the WACC, which is a
long period of time. We define economic profits as re-
weighted average of the costs of equity, debt, and pre-
turns on invested capital (or ROIC) over and above our es- Stage I: Explicit Forecast
ferred stock (and any other funding sources), using ex-
Morningstar Equity Research Star Rating Methodology pected future proportionate long-term, market-value
weights.
3. Uncertainty Around That Fair Value Estimate

Morningstar’s Uncertainty Rating is designed to capture
the range of potential outcomes for a company’s intrinsic
value. This rating is used to assign the margin of safety
required before investing, which in turn explicitly drives
our stock star rating system. The Uncertainty Rating is
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aimed at identifying the confidence we should have in as- Morningstar Equity Research Star Rating Methodology
signing a fair value estimate for a given stock.
Our Uncertainty Rating is meant to take into account any-

thing that can increase the potential dispersion of future
outcomes for the intrinsic value of a company, and any-
thing that can affect our ability to accurately predict
these outcomes. The rating begins with a suggested rat-
ing produced by a quantitative process based on the trail-
ing 12-month standard deviation of daily stock returns.
An analyst overlay is then applied, with analysts using
the suggested rating, historical rating data, and their own
knowledge of the company to inform them as they make
the final Uncertainty Rating decision. Ultimately, the rat-
ing decision rests with the analyst. Analysts take into ac-
count many characteristics when making their final de-
cision, including cyclical factors, operational and financial
factors such as leverage, company-specific events, ESG
risks, and anything else that might increase the potential
dispersion of future outcomes and our ability to estimate
those outcomes.
Our recommended margin of safety—the discount to fair

value demanded before we’d recommend buying or
selling the stock—widens as our uncertainty of the es-
timated value of the equity increases. The more uncertain factors.
we are about the potential dispersion of outcomes, the For more details about our methodology, please go to
greater the discount we require relative to our estimate of https://shareholders.morningstar.com The Morningstar Star Ratings for stocks are defined be-
the value of the firm before we would recommend the low:
purchase of the shares. In addition, the Uncertainty Rat- Morningstar Star Rating for Stocks QQQQQ We believe appreciation beyond a fair risk ad-
ing provides guidance in portfolio construction based on justed return is highly likely over a multiyear time frame.
Once we determine the fair value estimate of a stock, we
risk tolerance. Scenario analysis developed by our analysts indicates
compare it with the stock’s current market price on a
daily basis, and the star rating is automatically re-calcu- that the current market price represents an excessively
Our Uncertainty Ratings are: Low, Medium, High, Very
lated at the market close on every day the market on pessimistic outlook, limiting downside risk and maximiz-
High, and Extreme.
which the stock is listed is open. Our analysts keep close ing upside potential.
tabs on the companies they follow, and, based on thor-
Margin of Safety
ough and ongoing analysis, raise or lower their fair value QQQQ We believe appreciation beyond a fair risk-ad-
Qualitative Analysis
QRating estimates as warranted. justed return is likely.
Uncertainty Ratings QQQQQRating
Low 20% Discount 25% Premium QQQ Indicates our belief that investors are likely to re-
Please note, there is no predefined distribution of stars.
Medium 30% Discount 35% Premium ceive a fair risk-adjusted return (approximately cost of
That is, the percentage of stocks that earn 5 stars can
High 40% Discount 55% Premium equity).
fluctuate daily, so the star ratings, in the aggregate, can
Very High 50% Discount 75% Premium
serve as a gauge of the broader market’s valuation. When
Extreme 75% Discount 300% Premium QQ We believe investors are likely to receive a less than
there are many 5-star stocks, the stock market as a whole
is more undervalued, in our opinion, than when very few fair risk-adjusted return.
Our uncertainty rating is based on the interquartile range,
companies garner our highest rating.
or the middle 50% of potential outcomes, covering the Q Indicates a high probability of undesirable risk-adjus-
25th percentile–75th percentile. This means that when a ted returns from the current market price over a multiyear
We expect that if our base-case assumptions are true the
stock hits 5 stars, we expect there is a 75% chance that time frame, based on our analysis. Scenario analysis by
market price will converge on our fair value estimate over
the intrinsic value of that stock lies above the current our analysts indicates that the market is pricing in an ex-
time generally within three years (although it is im-
market price. Similarly, when a stock hits 1 star, we excessively optimistic outlook, limiting upside potential and
possible to predict the exact time frame in which market
pect there is a 75% chance that the intrinsic value of that leaving the investor exposed to Capital loss.
prices may adjust).
stock lies below the current market price.
Our star ratings are guideposts to a broad audience and Other Definitions
4. Market Price individuals must consider their own specific investment Last Price: Price of the stock as of the close of the mar-
The market prices used in this analysis and noted in the goals, risk tolerance, tax situation, time horizon, income ket of the last trading day before date of the report.
report come from exchange on which the stock is listed needs, and complete investment portfolio, among other
which we believe is a reliable source.
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Capital Allocation Rating: Our Capital Allocation (or Sustainalytics analyzes over 1,300 data points to assess a situation or particular needs of any specific recipient. This
Stewardship) Rating represents our assessment of the company’s exposure to and management of ESG risks. In publication is intended to provide information to assist in-
quality of management’s capital allocation, with particu- other words, ESG Risk Ratings measures a company’s un- stitutional investors in making their own investment de-
lar emphasis on the firm’s balance sheet, investments, managed ESG Risks represented as a quantitative score. cisions, not to provide investment advice to any specific
and shareholder distributions. Analysts consider compan- Unmanaged Risk is measured on an open-ended scale investor. Therefore, investments discussed and recom-
ies’ investment strategy and valuation, balance sheet starting at zero (no risk) with lower scores representing mendations made herein may not be suitable for all in-
management, and dividend and share buyback policies. less unmanaged risk and, for 95% of cases, the unman- vestors: recipients must exercise their own independent
Corporate governance factors are only considered if they aged ESG Risk score is below 50. judgment as to the suitability of such investments and re-
are likely to materially impact shareholder value, though commendations in the light of their own investment ob-
either the balance sheet, investment, or shareholder dis- Based on their quantitative scores, companies are jectives, experience, taxation status and financial posi-
tributions. Analysts assign one of three ratings: "Exem- grouped into one of five Risk Categories (negligible, low, tion.
plary", "Standard", or "Poor". Analysts judge Capital Alloc- medium, high, severe). These risk categories are absolute,
ation from an equity holder’s perspective. Ratings are de- meaning that a ‘high risk’ assessment reflects a compar- The information, data, analyses and opinions presented
termined on a forward looking and absolute basis. The able degree of unmanaged ESG risk across all subindus- herein are not warranted to be accurate, correct, com-
Standard rating is most common as most managers will tries covered. plete or timely. Unless otherwise provided in a separate
exhibit neither exceptionally strong nor poor capital alloc- agreement, neither Morningstar, Inc. or the Equity Re-
ation. The ESG Risk Rating Assessment is a visual representa- search Group represents that the report contents meet all
tion of Sustainalytics ESG Risk Categories on a 1 to 5 of the presentation and/or disclosure standards applic-
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Morningstar Equity Analyst Report | Report as of 1 Jul 2023 05:48, UTC | Reporting Currency: USD | Trading Currency: USD

| Exchange: NEW YORK STOCK EXCHANGE, INC. Page 1 of 22

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Price vs. Fair Value

Last Close: 329.45

300 Over Valued

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Bulls Say Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

in a single, easy-to-use platform.

Bears Say Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

the pie with Schlumberger and PTC.

underinvesting in capital expenditures for the sake of protecting profitability.

Economic Moat Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Fair Value Fair Value Fair Value

Economic Moat Wide Wide Wide Narrow

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Capital Allocation Joshua Aguilar, Senior Equity Analyst, 28 Apr 2023

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Analyst Notes Archive

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

with the tough macroeconomic environment.

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Competitors Price vs. Fair Value

Emerson Electric Co EMR

Fair Value: 103.00

Honeywell International Inc HON

Fair Value: 225.00

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Fair Value: 160.00

Rockwell Automation Inc ROK QQQ 30 Jun 2023 21:16, UTC

Morningstar Historical Summary

Valuation as of 30 Jun 2023

Morningstar Analyst Historical/Forecast Summary as of 27 Apr 2023

Emerson Electric Co EMR 30 Jun 2023 21:16, UTC

Honeywell International Inc HON 30 Jun 2023 21:16, UTC

Siemens AG SIE 30 Jun 2023 23:47, UTC

Research Methodology for Valuing Companies

3. Uncertainty Around That Fair Value Estimate

Research Methodology for Valuing Companies

Our Uncertainty Rating is meant to take into account any-

Our recommended margin of safety—the discount to fair

Research Methodology for Valuing Companies

Research Methodology for Valuing Companies

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