Kerrisdale Capital, known for its high-profile short positions, has recently shifted its focus to a more optimistic investment strategy. In a detailed report released on June 30, the firm announced a bullish stance on Regal Rexnord, a key player in the automation and manufacturing sectors. Kerrisdale underscored the company’s significant exposure to the booming data center and robotics industries as central to its favorable outlook. Despite Regal Rexnord’s impressive stock performance, with a 63% rise year-to-date, Kerrisdale’s analysts argue that the company remains undervalued.
In their report, Kerrisdale pointed out that Regal’s current trading price stands at 11.5 times its anticipated EBITDA for 2027. The firm also highlighted a growing valuation gap between Regal Rexnord and industry counterparts like RBC Bearings and Parker-Hannifin, even amidst rising stock prices. “In a world where even a whiff of data center revenue in a company’s opportunity pipeline can drive material multiple expansion, Regal’s exclusion from the party stands out,” they noted, indicating a significant discrepancy in market perception.
Kerrisdale’s analysis suggests substantial upside potential for Regal shares, asserting that a sum-of-the-parts evaluation could indicate an 81% upside. The firm emphasized that, while Regal continues to operate largely under the radar of Wall Street, its role as a supplier of critical components for data center builders positions it well to capitalize on the ongoing market growth.
The report further categorized Regal Rexnord among “pick-and-shovel” companies involved in building the tools and infrastructure necessary for advancements in artificial intelligence. While acknowledging potential supply chain vulnerabilities faced by sectors like power and industrial metals, Kerrisdale maintained that Regal’s component manufacturing capabilities mitigate such risks.
Additionally, the firm highlighted Regal’s exposure to robotics, which they argue could be equally, if not more, valuable than its data center affiliations. The rise in interest in physical AI is creating a demand for Regal’s gearings and precision motors, essential for the construction of automated systems. “Physical AI, or the extension of artificial intelligence into the physical world, promises to revolutionize manufacturing and logistics,” Kerrisdale commented. The company’s offerings in motors and linear motion products are anticipated to contribute significantly, accounting for 21% of total revenue.
As Regal Rexnord navigates the growth prospects presented by both the data center and robotics markets, Kerrisdale Capital continues to advocate for investors to consider the stock, recommending that they “get it while it’s cheap.”
