Rogers Corporation

ROG: NYSE

Rogers Corporation engages in the design and development of engineered materials and components for a wide variety of industries.[1] Its segments include Advanced Connectivity Solutions (ACS), Elastomeric Material Solutions (EMS), and Power Electronic Solutions (PES).[2]

Investment thesis

We believe Rogers Corporation has dominant[3] market share in their product categories. We are of the opinion the company will benefit from certain key secular trends[4] leading to strong organic growth.

Confirmation through research

In the ACS segment, which makes up 35% of profits, Rogers benefits from the continued penetration of assistive systems in automobiles, and will profit off the roll out of 5G.[5] In our view, this should lead to 10% to 15% growth for at least the next 5 years. In the EAS segment, which accounts for 40% of profits, we believe the company plays in niche applications which are sticky, and growing 5% to 7%.[6] Finally, the PES segment, the last large segment at 18% of profits, should benefit off increased EV and hybrid vehicles, as the company’s two main products in copper substrates are used in EV/hybrid cars.[7] We believe the company should grow operating margins as 5G is rolled out, and M&A should lead to additional growth. Finally we have a view that the company generates strong free cash flow, which will be utilized in share repurchases over time.

Variant Perception

We believe that the market is not assigning a fair value to the business considering the company’s dominant market share, benefit of the 5G roll out, and the secular growth trends in their core segments. We believe the multiple should re-rate over time as the company moves toward its goal of $8 of earnings in 2020.