EDAC

Best Idea EDAC Tech Falling Prey to Profit Taking…Nothing More

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We continue to like EDAC Tech (EDAC) and peg its fair value north of $20 per share. The stock has been roughly a triple for our members. We think the recent sell-off is a result of nothing more than profit taking in advance of the potential for capital gains taxes to increase next year. ”In the aerospace market, we are very bullish. Boeing has announced in their earnings reports that their order book is extremely high. We are facing a time of unprecedented growth in the development of new aircraft engines.” Source: EDAC Tech CEO Dominick Pagano (Wall Street Transcript), November 12, 2012. << Read the full Wall Street Transcript Interview with EDAC Tech’s CEO Dominick Pagano

Opportunity Ripens for Entry Point in EDAC Tech

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EDAC Tech (EDAC) has been one of our best performing ideas since the inception of our Best Ideas portfolio. We first added the company to our Best Ideas portfolio when it was trading just above $4 per share, and we now peg its fair value north of $20 per share. The stock has been under pressure as of late, and we wanted to bring one of our very best ideas to light on share weakness. Please click the image below to download the firm’s 16-page equity report.  

Astronics Stuck in Neutral After Profitability Stalls

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Tuesday morning, aerospace supplier Astronics (click ticker for report: ) reported mixed third quarter results. Revenue surged 22% year-over-year to $68.9 million, roughly in-line with consensus estimates. However, earnings were a bit weaker than expected, falling 27% year-over-year to $0.33 per share. Unfortunately, all cost metrics for Astronics ticked up, leading to a 100 basis point year-over-year decline in gross margins to 24.3%, and a 190 basis point increase in SG&A expenses to 13.2% of revenue. Management cited a one-time issue—an increase in warranty reserves—as the main reason for the year-over-year decline. When we back out the number, gross margins were roughly flat. Assuming CEO Peter Gundermann was correct, we don’t view the issue as much of a problem. SG&A, … Read more

Best Idea EDAC Posts Excellent Third Quarter

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On Wednesday, Best Idea Newsletter portfolio holding EDAC Tech (click ticker for report: ) posted excellent third quarter results that showed impressive sales growth and net income expansion. We continue to believe that shares are worth over $20 each, offering investors substantial upside potential. EDAC’s third-quarter revenue reached $27.5 million, up 26% from the third quarter of last year. Aerospace sales advanced 30%, while industrial segment sales increased 17%.  Operating income jumped nearly 70% thanks to roughly 270 basis points of operating margin expansion, to 10.8% of sales. Both of the company’s divisions had strong profit performance. We continue to believe the market is underestimating the tremendous operating leverage inherent to EDAC’s business model and the pace of earnings expansion … Read more

Boeing Reports Solid Third Quarter; Commercial Aerospace Backlog Remains Strong

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On Wednesday, aerospace giant Boeing (click ticker for report: ) reported excellent third-quarter results that showed solid backlog trends and improving cash flow. We continue to think aerospace is one the strongest sectors in the global economy, boasting significant visibility as a result of the tremendous backlogs of the airframe makers. We do not expect to make a change to our fair value estimate of Boeing at this time. Boeing’s revenue advanced 13% during the period thanks to commercial airplane sales, which jumped 28% on higher delivery volume. Operating earnings rose roughly 6% in its commercial business, while defense earnings were roughly flat from the year-ago period. Excluding pension expense, earnings per share advanced 5% during the quarter. We continue … Read more

United Technologies’ Third Quarter Results Left Much to Be Desired

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On Tuesday, United Technologies (click ticker for report: ) reported weak third-quarter results. Sales advanced 6%, but earnings dropped by a similar amount, excluding restructuring costs. Organic sales fell 2% as negative foreign currency fluctuations adversely impacted expansion by 3 percentage points. The company’s operating margin also fell 100 basis points from the prior-year period, after adjusting for restructuring costs and net one-time items. Though the results weren’t as strong as we would have liked, we don’t expect any change to our fair value estimate to be material. New equipment orders were solid at Otis and in its North American residential HVAC business, but commercial aerospace spares orders dropped over 20% at Pratt & Whitney and 6% at UTC Aerospace … Read more

Honeywell Shows Continued Strong Execution; Revenue Environment Weakens

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Last Friday, Honeywell (click ticker for report: ) reported mixed third-quarter results that showed weakness in Europe (as expected) but strength in commercial aerospace, infrastructure spending, and oil and gas investments. Though revenue was roughly flat from the same period a year ago, organic sales edged up 2% and earnings per share from continuing operations jumped nearly 40%, though the firm benefited from a more-favorable tax rate in the most recently reported quarter. The company lowered its 2012 revenue guidance modestly, but it only narrowed the range of its 2012 proforma earnings per share outlook to $4.45-$4.50 per share (was $4.40-$4.55 per share), still representing a double-digit increase from last year. Free cash flow for the year is expected to … Read more