From Barron's Investors' Soapbox AM (Aug. 15)
Top Picks in Industrial Automation
Credit Suisse says Rockwell Automation and Siemens are favorites.
Credit SuisseSee also:
In this report, we explain why we think the industrial automation market is an attractive long-term investment opportunity, identify key trends driving the market, and provide an overview of key products, technologies and vendors involved.
We analyzed the growth outlook in three ways: 1) scope for automation penetration increases; 2) specific end-market drivers; and 3) where we are in the industrial cycle.
We expect the global industrial automation market to grow at about 1.5 times global industrial production (IP) over the next cycle, versus about 1.3 times global (IP) last cycle.
Given the high degree of market consolidation, diverse customer bases, limited new entrants, limited capacity additions by incumbents, disaggregated routes to market, and strong price discipline, we think the margin premium enjoyed by automation vendors (about 400 basis points higher than average industrial margins) is sustainable.
Although most industrial end-markets are likely to grow at a significantly slower pace in China going forward, we think automation will be an exception. China has hit its "Lewis Turning Point," in that the supply of rural surplus labor is diminishing rapidly. This, combined with demographic shifts and government efforts to push up wages, will drive elevated levels of automation investment.
Taking into account the experience of other East Asian economies that have industrialized, and the low penetration of automation in China, the discrete automation could grow at a 15% to 40% compound annual growth rate over four years....MORE
....Two emerging themes we see are convergence, and 3-D printing. We anticipate accelerated convergence on both a vertical (automation vendors offer a broad range of controls and software products, as well as hardware), and horizontal basis (a gradual merging of discrete and process markets), with mergers and acquisitions playing a key role....
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