PCP

Best Idea Precision Castparts Buys Titanium Metals; We Like the Deal

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On Friday, Precision Castparts (click ticker for report: ) announced that it has entered into an agreement to buy Titanium Metals (click ticker for report: ) for $16.50 per share in cash, roughly in line with our fair value estimate. We’re huge fans of this deal and expect Precision Castparts to extract significant synergies, similar to what it was able to accomplish when it bought Special Metals in 2006. Precision Castparts’ CEO Mark Donegan is perhaps the best aerospace executive when it comes to integrating acquisitions and delivering value to shareholders. The tie-up provides Precision Castparts with valuable titanium capacity, and we think the deal helps Precision optimize its supply chain by giving it greater control of input costs via … Read more

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

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

Stay the Course: Alcoa’s 1Q Results Support the Overweight Aerospace Position in Our Best Ideas Portfolio

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Alcoa kicked off first-quarter earnings season with a solid report. Despite views that first-quarter earnings growth will be meager and almost negligible absent Apple (AAPL), we strongly disagree. We expect continued strong performance out of the cyclical aerospace sector coupled with improving earnings from the energy firms levered to oil. Alcoa, for example, posted $0.09 in earnings per share during the period versus consensus expectations of a $0.04 per share loss. But we had been expecting the earnings beat from the aluminum giant, and our fair value estimate for Alcoa remains unchanged following the report. We view Alcoa’s report more important for interpreting how certain end markets are performing than anything else. With that said, Alcoa reported year-over-year revenue growth … Read more