RRX

We rate REGAL REXNORD CORP (RRX) as a Hold with a composite score of 59.0/100 at a current price of $223.50. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (74th percentile) and momentum (68th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (31th percentile) and quality (51th percentile) tempers our overall conviction. We assign a Narrow Moat rating (47/100), High uncertainty, and Poor capital allocation.

Key items to watch: whether strong momentum is fundamentally supported by revenue trends. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

REGAL REXNORD CORP holds a top-quartile position (#0 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 59.0/100 places it at rank #788 in our full 7,333-stock universe. At $9.5B in market capitalization, REGAL REXNORD CORP is a mid-cap player in the Manufacturing space, which limits certain scale advantages but may allow for more agile strategic execution.

Despite positive momentum (68th percentile), revenue contraction of -3% creates a divergence between price action and fundamental trajectory. This divergence suggests either that the market is looking through near-term weakness or that technical factors are temporarily inflating the stock. Investors should assess whether the revenue decline reflects cyclical weakness or structural challenges.

The margin cascade tells an important story: gross margins of 37% (-5.1pp vs sector) narrow to operating margins of 12% (+10.4pp vs sector) and net margins of 4.9%, yielding a gross-to-net conversion rate of 13%. The significant margin erosion from gross to net suggests elevated operating expenses, high interest costs, or other structural drags that warrant monitoring.

At a current price of $223.50, REGAL REXNORD CORP appears undervalued relative to its fundamentals. Our value factor score of 74/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 49.3x (a 122% premium to the sector median of 22.3x), EV/EBITDA of 27.7x (at a premium), P/B of 2.1x, P/S of 2.4x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis finds only partially justified by current fundamentals.

We assign a High uncertainty rating to REGAL REXNORD CORP. Key risk factors include elevated market sensitivity (beta of 1.54), elevated valuation multiple (P/E 49.3x) that leaves limited margin for error, the combination of leverage (70% D/E) and thin margins (4.9% net) amplifies downside risk. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: elevated market sensitivity (beta of 1.54); elevated valuation multiple (P/E 49.3x) that leaves limited margin for error; the combination of leverage (70% D/E) and thin margins (4.9% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 55th percentile and quality factor at the 51th percentile provide a quantitative summary of the overall risk landscape.

We identify limited risk mitigants at this time, which contributes to our high uncertainty assessment. Investors should monitor for improvement in balance sheet metrics, margin stability, and business predictability that could warrant a downgrade in our risk assessment over time.

We rate REGAL REXNORD CORP's capital allocation as Poor. Key concerns include low returns on equity (4.2%). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — REGAL REXNORD CORP significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, REGAL REXNORD CORP receives a Hold rating with a composite score of 59.0/100 (rank #788 of 7,333). Our quantitative framework assigns a Narrow Moat (47/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 56/100.

Our analysis supports a neutral stance on REGAL REXNORD CORP. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.