RBC Bearings INC (RBC) stock intrinsic value fair value estimate & owner earnings analysis

RBC Bearings makes engineered bearings, gearing, valves and precision components. These go into aircraft, submarines, missiles, military vehicles and industrial equipment. The company reports two segments. Industrial (57.9% of sales in the fiscal year ended March 28, 2026) is built largely on the roughly $2.9 billion Dodge acquisition in fiscal 2022 and sells mostly through distributors and the aftermarket. Aerospace & Defense (42.1%) supplies Boeing, Airbus, the U.S. Department of Defense, Newport News Shipbuilding, Lockheed Martin and others. In July 2025 RBC bought VACCO Industries for $276.7 million, borrowing $200 million to do it. VACCO added $83.9 million of sales in fiscal 2026. What the business earns. We measure owner earnings: the cash the business produces after the capital spending needed to keep it running and after treating stock compensation as a real cost. Per share, owner earnings were $7.07 in fiscal 2023, $9.25 in 2024, $9.33 in 2025 and $11.58 in 2026. We start from $9.29, the median of the four full years since Dodge. Earlier years describe a much smaller company. That starting point is deliberately below the latest year, which was helped by VACCO and a jump in defense shipments. Several accounting choices matter: - We add back amortization of acquired intangibles ($81.0 million in fiscal 2026). Industrial sales have held up since the acquisition (+0.2% in fiscal 2025, +3.8% in 2026), so these assets are not visibly wearing away. - Preferred dividends are deducted for the years before the preferred shares converted. - Only the part of capital spending that maintains the business is charged against the base level. Spending for growth is split out at about 3.6 cents per dollar of new sales. - Growth is not free. Inventory alone was $762.8 million, about 41% of sales. So every case charges 45 cents of extra working capital and equipment for each dollar of added sales. Base case ($284.17 per share). Owner earnings grew 24.1% last year. We assume 24% in year one, which is no faster than that. The pace is supported by a first quarter of fiscal 2027 in which sales rose to $519.5 million from $436.0 million and net income rose to $101.5 million from $68.5 million. The drivers are all on the books. Backlog is $2.3 billion, against $0.9 billion a year earlier, and includes $0.6 billion from VACCO and $1.1 billion related to marine defense programs. Excluding VACCO, defense sales grew 22.9% and commercial aerospace grew 17.8% on higher aircraft build rates. Industrial is modeled at about 3% a year, in line with its recent record. Growth slows to 10% in year two and 5% by year six, reaching about $20 of owner earnings per share in year ten. After that we assume no growth at all. Replacement-bearing demand from installed equipment and aircraft keeps earnings at the year-ten level, which amounts to a slow decline after inflation. That later period makes up about 65% of the value. Bear case ($138.90). The first year still benefits from backlog already booked (+10%). The following year, an industrial recession and a pause in aircraft deliveries cut owner earnings 15%, to below the fiscal 2024 level. The risks are named in the filings. One customer accounted for 13% of sales in fiscal 2026 and 18% in fiscal 2025. Motion Industries and Boeing together made up 23% of receivables. Debt was $875.5 million, including $500 million of 4.375% notes due 2029, which we assume are refinanced at a higher rate (about 30 cents a share a year). Recovery then runs at 3% a year, and earnings shrink 2% a year after year ten. For reference, the company's worst recent year, fiscal 2021, saw sales fall 16%, yet owner earnings per share held roughly flat. Bull case ($446.36). The backlog converts faster. Year one grows 28%, roughly the pace the first quarter of fiscal 2027 is already running at, and growth stays near 8% a year through year ten. Aircraft built during the decade then add about 3% a year of aftermarket demand for ten more years, after which earnings hold flat. What the shares appear to be worth. The base case is $284.17 per share, within a range of $138.90 to $446.36, discounted at 6%. Debt is not subtracted separately, because owner earnings are already measured after interest. Leverage is instead reflected in the bear case. The business is dependable, but half of it is cyclical industrial demand and much of the rest depends on aircraft build rates and defense budgets. A margin-of-safety price of $175.00 sits about 38% below the base case. What could make this wrong. The main risks are a sustained drop in aircraft production at Boeing or Airbus, delays on the marine defense programs behind the $1.1 billion marine backlog, or Industrial demand turning down while debt is still being repaid. One thing we could not fully reconcile. Results for fiscal 2020 through 2022 were restated in an amended annual report filed in August 2022. The restatement changed reported net income and stock compensation but not operating cash flow. The reason was not in the documents we reviewed. Those years are outside our base period.