Regal Beloit (NYSE:RBC) Margins Under Pressure with Rising Copper Prices

Rising copper prices has forced KeyBanc to re-evaluate their margin outlook for Regal Beloit (NYSE:RBC), which they believe will be under pressure in the first half of 2011.

KeyBanc said, "We are updating our model to include the acquisition of A.O. Smith's (NYSE:AOS) motor business and refreshing our early 2011 margin outlook following an extensive analysis of the near-term impact of copper inflation. Following an in-depth look at the earnings sensitivity surrounding the recent escalation in copper prices, we come away more cautious on the margin trajectory heading into 1H11 and believe these pressures are likely to create a temporary period of earnings volatility as price actions take time to catch up. We believe consensus expectations for 1H11 do not adequately reflect the full impact of these headwinds (we are modeling $0.20/share) and believe shares could come under pressure near-term following a healthy run in the stock."

KeyBanc reiterates a "Buy" rating on Regal Beloit, which was trading at $68.46, up $0.12, or 0.18 percent, as of 2:34 PM EST. They boosted their price target on them from $79 to $82.

AO Smith (NYSE:AOS) Unlikely to Seel Electric Motors Unit, Downgraded

AO Smith (NYSE:AOS) had a nice bump up, but were downgraded by Hudson Securities on the unlikely scenario of them selling their electric motors unit.

Hudson said, "Shares have rallied most recently since ABB (Not Rated) announced its intent to acquire Baldor Electric (NYSE:BEZ), an electrical motor manufacturer that primarily serves industrial customers. The deal fueled speculation that A.O. Smith may sell its electrical motors business, which is mostly residential and commercial HVAC related.

"Outside of the M&A speculation, we see A.O. Smith continuing to deliver steady results given the high replacement content in both segments, but the company will likely not see tremendous top-line growth next year outside of China and its start-up in India."

AO Smith closed at $42.55, down $0.52, or 1.21 percent. Hudson Securities downgraded them from "Buy" to "Neutral."