RBC BEARINGS INC (NYSE:RBC) Passes the Caviar Cruise Screen for Quality Investing

In the world of quality investing, the focus is on identifying companies with durable competitive advantages, strong financial health, and consistent growth, firms that can be held for the long term. One method for finding such opportunities is the Caviar Cruise stock screen, which uses a set of quantitative filters to identify businesses that show traits valued by quality-focused investors. This approach highlights metrics like revenue and EBIT growth, return on invested capital, manageable debt levels, and high-quality profits, making sure that chosen companies not only perform well but do so sustainably and efficiently.

Performance and Growth Metrics

RBC BEARINGS INC (NYSE:RBC) shows several characteristics that fit with the Caviar Cruise screen’s focus on historical and operational excellence. Although the 5-year revenue growth figure is not available in the provided data, the company’s EBIT has grown at a compound annual rate of 18.70% over the past five years, comfortably above the screen’s 5% threshold. This points to solid expansion in operational profitability, a key factor for quality investors who look for businesses that can grow earnings faster than revenues, often a sign of pricing power or improving efficiencies.

• EBIT Growth (5Y CAGR): 18.70%
• ROIC (Excluding Cash, Goodwill, Intangibles): 26.53%

The return on invested capital, excluding non-operational assets, is a notable 26.53%, well above the 15% minimum required by the screen. A high ROIC is important in quality investing because it shows how well a company uses its capital to generate profits, signaling efficient management and a potential competitive moat.

Financial Health and Profit Quality

Another part of the Caviar Cruise method is financial stability, measured through metrics like the debt-to-free cash flow ratio. For RBC Bearings, this ratio is 3.55, meaning it would take fewer than four years to repay all outstanding debt using current free cash flow. This is within the screen’s acceptable range of below 5, pointing to a healthy balance sheet and lower financial risk.

• Debt / Free Cash Flow: 3.55
• Profit Quality (5Y Average): 173.26%

Perhaps most notably, the company’s 5-year average profit quality, measured as free cash flow relative to net income, is 173.26%, far above the 75% benchmark. This indicates that RBC Bearings not only generates accounting profits but converts them strongly into cash, which can be used for reinvestment, debt reduction, or shareholder returns. High profit quality is valued by quality investors as it shows earnings are sustainable and not dependent on non-cash adjustments.

Analyst Perspectives and Valuation

According to the fundamental analysis report, RBC Bearings has a mixed but generally favorable profile. The report gives it a fundamental rating of 5 out of 10, noting excellent health and profitability metrics compared to industry peers, though valuation seems expensive. Key points include:

• Strong profit margins and solid liquidity, with a current ratio of 3.33.
• A good Altman-Z score of 5.53, pointing to low bankruptcy risk.
• Expected future growth in both revenue and earnings per share, based on analyst estimates.

However, the valuation section notes a high P/E ratio of 36.71, suggesting the market has priced in much of the company’s growth potential. For quality investors, who often accept premium valuations for exceptional businesses, this may not be a major issue, but it highlights the need for careful evaluation before investment.

Suitability for Quality Investing

RBC Bearings operates in engineered precision bearings and components, serving aerospace, defense, and industrial sectors, markets known for high technical requirements and long-term demand trends. This fits with qualitative aspects quality investors often look for, such as a durable competitive advantage, global activity, and recession resilience due to defense and aerospace exposure. The company’s financial metrics, high ROIC, strong profit quality, and controlled debt, support the idea that it has the operational excellence and stability that define a quality enterprise.

For investors interested in finding other companies that meet similar criteria, the Caviar Cruise screen can be found here, providing a changing list of potential quality investment candidates.

Disclaimer: This article is for informational purposes only and does not constitute investment advice or a recommendation to buy or sell any securities. Investors should conduct their own research and consult with a qualified financial advisor before making investment decisions.