BA

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

by

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

Headline Risk Entering the Market

by

The summer months have been relatively uneventful, with the exception of concerns relating to the Federal Reserve’s coming tapering of its bond-buying program and quibbles between hedge fund giants over a company that makes protein shakes—we’re talking about Herbalife (HLF) in the latter example. Even the sequester proved to be a largely underwhelming event so far through 2013. As a result, the market has focused on fundamentals, awarding strong performance and punishing poor performance (almost irrespective of valuation parameters). However, the market remains fully valued at current levels, with the forward price-to-earnings ratio on S&P 500 companies in-line with its 10-year average at 14.1 times, and the distribution of our Valuentum Buying Index ratings tilting decidedly negative. The forward price-to-earnings … Read more

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

by

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

by

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

Alcoa Is Stuck in Neutral

by

Monday afternoon, industrial bellwether Alcoa (click ticker for report: ) announced solid second-quarter results. Revenue was down 2% year-over-year to $5.8 billion, a tad shy of consensus estimates. Excluding the impact of special items, earnings per share were up one cent year-over-year to $0.07, exceeding consensus estimates. Free cash flow declined slightly year-over-year to $228 million, or 4% of revenue. Engineered Products and Solutions (EPS) Image Source: AA Analyst Presentation Q2 2013 Yet again, Alcoa’s Engineered Products and Solutions business, its largest profit driver, was the standout performer for the quarter. After tax operating income (ATOI) hit a record level of $193 million, up 23% year-over-year, on revenue that only increased 3% year-over-year. The segment registered an all-time high in … Read more

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

by

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

House Defense Appropriators Ignore Sequestration

by

To download the 155+ page fiscal 2014 Defense Appropriations bill, please click here. On Tuesday, the House Appropriations Committee released the subcommittee draft of the fiscal year 2014 Defense Appropriations bill. The bill provides for $512.5 billion in non-war funding, an amount that completely ignores the level that would be caused by automatic sequestration spending cuts (to the tune of over $28 billion). The House’s proposal is also $5.1 billion below fiscal 2013 levels and $3.4 billion below President Obama’s request. In any case (whether the bill in current form is implemented or if sequestration takes hold and further spending cuts are put in place), the trajectory of defense spending for fiscal 2014 relative to fiscal 2013 is down. The … Read more

Boeing Keeps Raking in Aircraft Orders

by

Boeing (click ticker for report: ) updated its ‘Orders and Deliveries‘ page on its website this week, and we were pleased to see a nice uptick in orders. We keep a close eye on commercial aircraft orders as the pace remains a key driver of sentiment within the aerospace industry, even though Boeing and Airbus are effectively “sold out” for at least the next 12 months. According to the disclosure, the plane-maker has booked roughly 428 net orders through May 21 of this year, which puts the aerospace giant well on its way to achieving a book-to-bill north of 1 (signaling backlog expansion). Though our positive thesis on the aerospace supply chain–AAR (AIR), Astronics (ATRO), Rockwell Collins (COL), HEICO (HEI), Hexcel Corp (HXL), Precision Castparts (PCP), Spirit AeroSystems (SPR), … Read more

FAA Clears the Boeing Battery Solution; Supply-Chain Value Still Evident

by

Late yesterday afternoon, airplane manufacturer and designer Boeing (click ticker for report: ) received approval for the company’s plan to test and certify batteries for its 787 Dreamliner jet. Boeing’s lithium ion battery issues plagued several of its new jets, including many in Japan, which caused substantial weakness in shares even though orders remained strong, and several industry insiders indicated the problem wasn’t anything out of the ordinary. On January 17th, we called for the bottom in sentiment regarding the Boeing 787, and shares of the company have rallied 13% since. Although we did not believe the lithium ion battery would be a long-term headwind for Boeing, several market participants wondered if the company could develop a satisfactory solution, weighing … Read more

Boeing’s Fourth Quarter Supports Our Thesis on Aerospace

by

On Wednesday, aerospace giant Boeing (click ticker for report: ) reported strong fourth-quarter results. We’re holding steady with our fair value estimate, despite the constant flow of negative news about the 787 Dreamliner. Boeing’s total revenue advanced 14% in the period, though modest operating margin contraction led to a slightly lower pace of core operating earnings growth, which came in at 9% (on a non-GAAP basis). Operating cash flow surged 42% as the company continues to better handle inventories related to the 787 Dreamliner. However, the firm’s revolutionary plane currently remains grounded due to a series of battery problems, and its decision not to slow production could begin to pressure cash flow again to a degree. Still, we remain confident … Read more