AIR

Perhaps Nothing Stronger Than Aerospace

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In the world of investing, the strength of the industry in which a firm operates is sometimes as important as the company itself. A strong industry backdrop offers the potential for fundamental upside as the industry revenue pie grows. Said differently, it is much easier for a firm to do well in an expanding industry, where both the industry’s revenue pie is growing and market share opportunities are available, than it is for a firm to do well in a shrinking industry, where it may have to battle entrenched competitors in a pricing death match to gain share. Though commercial aerospace will always be cyclical (as it relates to order trends) and pricing competitiveness will always be present, the massive … Read more

Alcoa’s First Quarter Results: The Most Important Slide

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Image Source: Alcoa Notes: Aerospace: 7.5% end market CAGR (2013-2016); ~8 year production backlog for large commercial aircraft Automotive: >50% CAGR for North American auto sheet (2013-2016); North American aluminum auto sheet demand by 2025 over 1 million metric tons Commercial Transportation: 3-4% heavy duty truck market CAGR (2013-2016); 40% of wheels market expected to be aluminum by 2014 Packaging: 2-3% global beverage can market CAGR (2013-2016); aluminum penetration versus steel continues in China, Asia, Europe and Africa (currently 86% globally) Continued Growth Across End Markets Alcoa is increasing its 2014 global aerospace growth expectation by one percentage point (8 percent to 9 percent, previously 7 percent to 8 percent), on strong demand for both large commercial aircraft and regional … Read more

Boeing’s Fourth-Quarter Results Were Disappointing But We’re Not Worried about the Strength of Commercial Aerospace

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On Wednesday, aerospace and defense bellwether Boeing (BA) reported relatively disappointing fourth-quarter results. Revenue advanced 7% in the period, but core operating earnings were flat versus the prior-year quarter due to a 50 basis-point headwind in its core operating margin. Our experience with Boeing is that the firm tends to face share-price pressure when financing or emerging-market scares become prominent, the latter taking center stage in recent days—the Argentine peso collapsed and the South African rand continues to face pressure due to an unexpected rate hike. News about China—including a slowdown in manufacturing, banking concerns, and a sizzling (but more vulnerable) real estate market—isn’t helping either. Boeing is more exposed to these “news” items than most companies, particularly given the … Read more

United Technologies, Precision Castparts Confirm Aerospace Strength

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On Wednesday, industrial conglomerate United Technologies (UTX) reported solid fourth-quarter results. During 2013, earnings per share and net income attributable to common shareholders advanced 16% and 17%, respectively, over the prior year period. Though most of it was acquired expansion, sales jumped 9%, while the company’s adjusted segment operating margin increased 90 basis points, to 15.7%. Cash flow from operations came in at $7.5 billion for the year and capital expenditures were $1.7 billion, resulting in free cash flow of $5.8 billion (or 9.3% of sales). We were particularly pleased with CEO Chenevert’s comments about witnessing an acceleration of organic growth throughout the year. Fourth-quarter organic sales growth was 4% (better than the 1% pace recorded for the entire year), … Read more

Boeing Sets Records for 2013; Aerospace Thesis Remains Intact

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Boeing (BA) revealed the tremendous strength of global commercial aerospace demand in a news release Monday. During 2013, the aerospace giant noted that it delivered a record 648 commercial deliveries, received a record 1,531 gross commercial orders for the year, and posted a record 5,080 units in its backlog of unfulfilled orders at the end of 2013. The 1,355 net commercial order mark for the year was the second-largest in company history. Boeing continues to execute well on its production rate increases, and three of its programs set records for deliveries during the year: the 737 program, the 777 program, and the 787 Dreamliner program. 2013 was a fantastic year across the board for Boeing and for much of the … Read more

The Dichotomy of Airlines and Aerospace

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On Monday, top insurance idea AIG (AIG) announced that it would sell International Lease Finance Corporation (ILFC) to aircraft leasing firm AerCap Holdings (AER) for $5.4 billion, consisting of $3 billion in cash and the balance in newly-issued AerCap common shares. Though we think ILFC was one of the crown jewels of AIG’s business particularly considering the prospects for global air travel demand in coming years, the price is fair and opportunistic, especially since AerCap is risking its investment-grade status to facilitate the deal. We don’t think better terms could have been had by either party, given financial constraints, and shares of both entities are moving higher on the news. The combined AerCap-ILFC will be #2 on the world stage … Read more

Flashback 2008: Brian Nelson and Pat Dorsey — the Morningstar Years

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We think it’s important to know the people you’re working with at Valuentum. We’re not some robot behind the scenes that only lives in the Internet. We’re hard-working individuals with families just like you. Let’s take a flashback in time to when Valuentum’s current President of Equity Research Brian Nelson called for Boeing’s shares to hit $110 in 2008, while he was working as a Senior Analyst at Morningstar. Shares are just a few dollars away from that level today. Source: http://www.youtube.com/user/MorningstarInc?feature=watch << Learn more about Brian Nelson, CFA Aerospace & Defense – Prime: BA, FLIR, GD, LLL, LMT, NOC, RTN Aerospace Suppliers: AIR, ATRO, COL, HEI, HXL, PCP, SPR, TDY, TXT

Boeing’s and United Technologies’ Second Quarters Reinforce Strength in Aerospace

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On Wednesday, Boeing (click ticker for report: ) reported better-than-consensus top and bottom line results for its second quarter. Revenue advanced 9% thanks to higher deliveries of the 787 Dreamliner and the workhorse 737 platform, while backlog grew to a record $410 billion (nearly 5 times expected 2013 revenue), including $40 billion of net orders during the quarter. Core earnings per share jumped 13%, as operating cash flow (before pension contributions) more than doubled, to $3.5 billion. Free cash flow generation in the period was just over $3 billion, or nearly 14% of revenue. Management raised its 2013 revenue outlook to the range of $83-$86 billion thanks to improved performance in its ‘Defense, Space, & Security’ segment and upped its … Read more

Market Overreacts to Heat Damage on Boeing’s 787 at Heathrow

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Boeing’s (click ticker for report: ) shares tumbled a few percentage points Friday after reports of a fire in the upper part of the rear fuselage of one of Ethiopian Airlines’ 787 Dreamliners that was parked on the tarmac at London Heathrow Airport. Preliminary results of the investigation reveal that the fire (heat damage) was not caused by the plane’s lithium-ion battery (location of batteries shown here), which had been the trigger of previous fire-related incidents on the aircraft. Interestingly, the plane had been parked for as many as eight hours and was unoccupied, leaving the cause of the blaze unidentified (unwitnessed) and somewhat peculiar. We expect the aft fuselage on this 787 to be a total loss, given our assessment … Read more

Precision Castparts Scoops Up Permaswage; Commercial Aircraft Orders Keep Rolling In

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On Thursday, Best Ideas Newsletter portfolio holding Precision Castparts (click ticker for report: ) acquired California-based aerospace supplier Permaswage for $600 million. Permaswage specializes in swage fittings, and its technology is included in almost every major commercial and military aircraft program. The deal is right in Precision Castparts’ wheelhouse as it improves dollar-content per aircraft and enhances the firm’s already-robust product suite. Precision Castparts’ CEO Mark Donegan should have no problems folding in the firm’s state-of-the-art operations and driving material synergies across the board. Though profitability disclosures are limited, we have a high degree of confidence that cost-savings and revenue enhancements will trump any meaningful premium that may have been paid above the entity’s fair value. We also think the deal strengthens Precision Castparts’ position in separable … Read more