Rockwell Automation (NYSE:ROK) is facing an investigation by the U.S. government on whether the company is exposing crucial U.S. infrastructure, military, and other government assets to a potentially dangerous cyber attack through one of its China-based facilities located in Dalian, the Wall Street Journal reported.
Rockwell offers industrial automation, cybersecurity solutions, and productivity-improvement software to customers. The company’s products and solutions are used by enterprises as well as the U.S. Navy and Coast Guard Ships. Rockwell’s products and software are available to navies in over 80 countries.
Investigation at Rockwell’s Dalian Facility
The investigation by the Biden administration involves the inspectors general at the Energy Department and the Defense Department as well as the Justice Department’s Commercial Litigation Branch. The U.S. government’s probe is focused on employees at Rockwell’s Dalian facility, who might have access to software codes used to connect with computers of key customers like the U.S. Navy.
As per a memorandum of investigative activity, a whistleblower interviewed by the U.S. government investigators alleged that Rockwell uses only Chinese nationals at its Dalian facility for code development, support, and software updates. Consequently, Rockwell’s clients are concerned about potential security implications.
The investigation is in the early stages and might end with no action against Rockwell. The news of a potential investigation comes at a time when tensions between U.S. and China are escalating.
Meanwhile, a Rockwell spokesperson said that the company has not received any notification about an investigation related to its Dalian facility, but intends to fully cooperate if it is notified.
Is ROK Stock a Good Stock to Buy?
On Thursday, Bernstein analyst Brendan Luecke increased the price target for Rockwell to $290 from $250 and reaffirmed a Hold rating.
Luecke thinks that despite the slowdown in orders, the company’s backlog should drive a strong performance in Fiscal 2024. Rockwell expects about $5 billion in backlog by the end of Fiscal 2023, which the analyst highlighted is about $3 billion more than its typical run-rate, providing enough opportunity to hedge declining orders into Fiscal 2024.
Wall Street is sidelined on Rockwell Automation, with a Hold consensus rating based on five Buys, six Holds, and three Sells. The average price target of $286.08 implies 6% upside.
