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Stock Strategist Industry Reports

Automation Firms Build Their Moats Through Integration

Reaping the rewards of investment, Rockwell is our favorite.

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With its strong growth and investment, automation has been one of the more robust industrial segments during the past decade, and we think it can support narrow economic moats.  Rockwell Automation (ROK) remains our favorite pick in the industry, while  Siemens (SI) appears to be the most likely acquirer.

Automation vendors tend to be broken down by the types of processes that their software handles. Discrete automation focuses on defined motion processes on countable items--what we typically see in a sorting line or a packing function. Several individual actions performed in succession are the forte of this branch. Equipment is typically bought from multiple vendors. As a result, software compatibility with the production equipment is critical. Manufacturers typically have a resident engineer to program the software, making ease of use also important. While there are some custom applications and solutions, these products typically are sold through distribution, though with back-end support. Rockwell Automation,  ABB (ABB), and Siemens all have established roots in these markets.

Daniel Holland does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.