I have occasional friendly debates with my friend Jim Pinto on business growth. He came to an opinion that at a certain size, say from $2 billion to $5 billion, that a company cannot generate sufficient growth organically to satisfy investors. At that point, the company must be sold to a larger company.

There are a number of problems with that scenario. One is that it ignores technology changes. Another is that the company may enter new markets.

I’ve had a great opportunity to interview many industry leaders over the course of the past few months. Especially last week in Hannover I had an opportunity to talk with top management at B&R, Beckhoff and Bosch Rexroth. And then comes this research analysis by Mark Douglass of Longbow Research about Rockwell. Rockwell is one company that Pinto cites as the prime example of his theory. But technology and markets are playing in Rockwell’s favor right now.

Douglass has raised the target price for Rockwell Automation Stock to $97. Way up from a year ago. He states in a release:

We think consensus views continue to underestimate ROK’s underlying fundamentals and that ROK is more than just a short cycle play. Global automation demand should continue to be robust in the next few years with ROK benefitting not only from short cycle demand, which doesn’t appear to have waned yet, but also long cycle markets where ROK’s strong product portfolio and sales and marketing focus have put it in a great position to gain share.

We are increasing our estimates based on the bullish sentiments in our recent Automation survey (Automation: Demand Still Running Strong, 2011 Outlook Optimistic, published April 4, 2011) as well as the continued strength in PMI data: our F2Q11 from $1.10 to $1.12, FY11E EPS from $4.60 to $4.75, and our FY12E from $5.25 to $5.70.

With FY11 on track to at least meet, and we think likely exceed, prior peak sales and earnings we decided to take a longer-term view of the earnings power of ROK and present a scenario analysis out to FY14 which we think is the next cyclical peak. Our base case estimates are $6.55 in FY13E and $7.20 in FY14E, implying 15-20% earnings growth through FY13 and least 10% y/y in FY14, with upside potential in the estimates.

We maintain that ROK has significant organic growth prospects due to global macro trends in automation and should be able to leverage this into strong earnings growth in the current cycle, and encourage investors to BUY even at current levels. We are raising our target price from $95 to $105.

Regarding the other three companies I talked with last week, all are showing good growth prospects. Growth is coming from several sources including an uptick in global economies, penetration into various Asian markets, new technologies that expand their product portfolios and new technologies that expand potential markets.

This is looking like an optimistic time in automation. I hope it lasts the cycle of a few years (at least until I retire).

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