EDAC

We’ve Dropped Coverage of the Aerospace Supply Chain

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Image Source: Kevin Structure of the A&D Supplier Industry The aerospace supply chain will benefit from the multi-year backlogs at the airframe makers, Boeing and Airbus. Though the current upswing looks robust, commercial aerospace has historically been cyclical and remains influenced by airline profits, passenger traffic, credit-market health, and geopolitical conditions. Participants generally operate under contracts with significant long-term price concessions, so cost-containment remains critical. The strongest suppliers are those that have long-standing customer relationships, technical expertise, and state-of-the-art manufacturing facilities. We like the group. We’ve dropped coverage of the A&D Supplier Industry. 

Valuentum Economic Castleâ„¢ Rating Update

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Read: Keeping the Horse Before the Cart: Valuentum’s Economic Castle™ Rating The Economic Castle Focuses on the Magnitude of Economic Value Creation The Valuentum Economic Castle™ rating is an enhancement of the competitive advantage framework (commonly known as economic moat analysis) that has become widespread and ubiquitous within the investing world. Whereas an economic moat framework evaluates a firm on the basis of the sustainability and durability of its competitive advantages, Valuentum’s Economic Castle™ rating evaluates a firm on the basis of the firm’s future economic profit spread (return on invested capital less its weighted average cost of capital). The companies with the strongest Valuentum Economic Castle™ ratings are poised to generate the most economic value for shareholders in the … Read more

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

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

EDAC Tech Offered $17.75 Per Share To Go Private

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Shares of Best Ideas Newsletter holding EDAC (click ticker for report: ) are hitting a new all-time high after the firm entered into a merger agreement with Greenbriar Equity Group. Details of the deal can be found here. We’re a little surprised by the deal, especially since the future outlook continues to look wonderful. However, management and the Board of Directors readily tendered its 18.2% of the company, so perhaps the $17.75 per share bid, which is in-line with the low-end of our fair value range, exceeded the level of share appreciation the firm thought possible in the near-term. The terms of this deal also beg the question of whether EDAC’s recent share price surge was composed of Greenbriar building … Read more

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

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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

Best Idea EDAC Technologies Caps off 2012 With Huge Earnings Growth

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Best Ideas Newsletter holding EDAC Tech (click ticker for report: ) announced fantastic fourth quarter results. Revenue rose 25% year-over-year to $28.4 million during the period, leaving the company with full-year revenue of $106.5 million, 23% higher than a year ago. Earnings growth was also strong, growing 24% year-over-year during the fourth quarter to $0.26 per share. For the full year, earnings increased a whopping 53% to $1.06 per share. We saw a nice improvement in gross margins during the fourth quarter, rising 140 basis points year-over-year to 19.3%. The higher-margin processing business that EDAC acquired when it purchased EBTEC helped boost overall gross margins. On the other side of the cost equation, SG&A rose nearly 43% on an absolute … Read more