Why RBC Bearings Will Keep Rolling Back

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of RBC Bearings (NASDAQ: ROLL  ) closed down 1% yesterday after Bank of America downgraded the ball bearings manufacturer from buy to neutral.

So what: Along with the downgrade, analyst Kristine Liwag reiterated her price target of $66, representing just 6% worth of upside to where the stock sits now. The stock has rallied nicely over the past six months on improving demand and consolidation in the industry, but Liwag thinks that the current valuation leaves investors with limited appreciation potential.

Now what: B of A expects the stock to see some resistance in the short term. "In our opinion, RBC's recent stock outperformance performance can be attributed to 1) a ramp-up in commercial aerospace, 2) improvement in ISM data PMI index since mid-2013 and 3) M&A activity in the bearings industry," noted B of A. "However, defense is likely to be a near-term headwind for the company as the US government shutdown interrupts military maintenance and procurement." With RBC shares up about 50% over the past three months and trading at a P/E of 26, I'd agree with B of A that not enough risk is being discounted into the valuation. 

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