This Japanese Robotics Stock Looks Interesting: Fanuc Corp, Rockwell Automation (ROK), Emerson Electric Co. (EMR)

At the end of January, Fool contributor Nathan Parmelee wrote a nice article about one leading Japanese factory automation company in his real money stock pick. It is Fanuc Corp (TYO:6954). Since the beginning of 2009, Fanuc’s stock price has consistently increased, from around $10 per share to $25 per share. Let’s take a closer look at Fanuc to see whether or not investors should get into it at its current price.

Earnings Analysis: Emerson Electric Co. (NYSE:EMR)Business snapshot

Fanuc Corp (TYO:6954), founded in 1956, is considered one of the biggest makers of industrial robots in the world, with operations in more than 22 countries. Its name is actually the abbreviation of the term Factory Automatic Numerical Control. It has three main business groups: FA Group, Robot Group, and Robomachine Group.

The majority of its sales, ¥267.6 ($2.82) billion, or 49.7% of total 2012 net sales, were generated from the FA Group. The Robomachine Group ranked second with ¥156.2 ($1.65) billion in revenue, accounting for 29% of Fanuc’s total revenue, while the Robot Group contributed ¥114.7 ($1.21) billion in 2012 sales. The majority of its sales in terms of geography came from Asia at ¥268 ($2.83) billion, while Japan was the second largest revenue contributor with ¥126.8 ($1.34) billion in revenue. Fanuc seems to have a diverse customer base as no single customer accounted for more than 10% of its total sales.

Consistent performance with no debt

In the past ten years, Fanuc Corp (TYO:6954) has witnessed rising top line and bottom line. Its revenue increased from ¥214.3 ($2.26) billion to ¥538.5 ($5.68) billion in 2012, while net income rose from ¥39.5 billion ($417 million) to ¥138.8 ($1.46) billion during the same period. Interestingly, its operating income has moved up 50% in the last ten years, from 28% to 41.2%.

What makes me interested in the company is the fact that Fanuc is a cash cow. Since 2003, its operating cash flow increased from ¥48.9 billion ($516 million) to ¥144.2 ($1.52) billion, and free cash flow rose from ¥41.5 billion ($438 million) to more than ¥100 ($1.05) billion. Interestingly, the improving operating performance was achieved without the help of any leverage. As of December 2012, it had ¥1 trillion ($10.55 billion) in total stockholders’ equity, ¥674.4 ($6.83) billion in cash and no debt.

Much cheaper than its U.S. peers

At around $25 per share, Fanuc is worth nearly $30 billion on the market. The market values Fanuc at only 7.64 times EV/EBITDA. Compared to its peers in the U.S., including Rockwell Automation (NYSE:ROK) and Emerson Electric Co. (NYSE:EMR), Fanuc has the lowest valuation. Rockwell Automation (NYSE:ROK), at around $87 per share, has a total market cap of around $12.5 billion. It has the most expensive valuation at 10.7 times EV/EBITDA. Emerson is the largest company with $41.3 billion in total market cap. At around $57 per share, the market values Emerson Electric Co. (NYSE:EMR) at 9 times EV/EBITDA.

What investors would notice about Fanuc is its extremely high operating margin. While operating margins of Rockwell Automation (NYSE:ROK) and Emerson Electric Co. (NYSE:EMR) were 16.23% and 16.68%, Fanuc Corp (TYO:6954) generated nearly 38.3% operating margin in the past twelve months. Furthermore, Fanuc has the most conservative balance sheet among the three. Whereas Fanuc doesn’t use any debt in its operations, the debt/equity ratio of Rockwell Automation (NYSE:ROK) and Emerson Electric Co. (NYSE:EMR) are 0.5 and 0.3, respectively.

Looking forward

Japan is already an established brand for quality automation and robotics. When the world’s living standard is moving higher, there’s certainly an increasing demand for automation and robotics. With a cheap valuation, high profitability, and rising revenue and profits, Fanuc Corp (TYO:6954) seems to be a decent bet for long term investors.

The article This Japanese Robotics Stock Looks Interesting originally appeared on Fool.com and is written by Anh HOANG.

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