UTX

Stay the Course; This is Not Lehman II, S&P Downgrade Meaningless

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As we had indicated a few weeks ago, investors should turn off the political news related to the debt ceiling debate, and we now encourage investors to stay the course with their investment strategy, despite the media’s attempt to amplify yet another containable crisis. When we first published our report suggesting that there was no cause for worry about the debt-ceiling deadline, we received quite a number of questions about how we could be so confident. Well, first of all, there is a degree of common sense: 1) the President could take it upon himself to invoke the use of the fourteenth amendment, which indicates that the US must make good on all of its debts and 2) politicians had already lived through the mistakes … Read more

Ignore Debt Ceiling News, Focus on Corporate Earnings

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Simply put, the United States is not going to default on its debt. In other words, we think any market action resulting from the debt-ceiling issue will be irrelevant in coming months, and resolve itself in due time — as it has with any other crisis. Further, we remain unconvinced that this topic is a legitimate concern for long-term equity investors. The fact that America has a large national debt (and a problem with entitlement programs) is well documented in every history and social-studies textbook in grammar schools across the country; how can this be something that will blindside the markets? We’re not talking about derivatives on complex mortgage instruments here. The debt-ceiling deadline is purely a political issue, one … Read more

GE Posts Strong Second-Quarter Results, Industrial Orders Surge

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General Electric (GE) posted strong second-quarter results Friday. Adjusted revenue advanced 7% in the period, while operating profit burgeoned 18% from last year’s quarter. The conglomerate experienced particular earnings strength from recovering GE Capital and its transportation segment, while its energy infrastructure and home and business solutions segments lagged behind considerably. Importantly, the company noted that infrastructure orders were up 24%, with equipment and services orders increasing 33% and 16%, respectively — backlog reached a new all-time high of $189 billion at the end of the quarter (it had been $177 billion in the first quarter). GE indicated that industrial earnings should improve in the second half of this year, with expectations for the cycle to accelerate in 2012. We … Read more

Our Take on United Techologies’ Second Quarter

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United Technologies (UTX) posted excellent second-quarter results Wednesday, with sales advancing 9% (6% organic) and net income jumping nearly 20% from the prior-year period. The firm’s operating margin for the quarter was 15.9%, 120 basis points higher than last year. Impressively, the firm noted that for the first time since mid-2008, all six of its business segments showed organic growth in the period. Further, order rates at Otis were up 23% thanks to strong demand from Asia and China, while order rates for commercial HVAC new equipment at Carrier jumped 13%. The firm’s aerospace segments continue to perform well, and we expect such strength to continue as Boeing (BA) and Airbus (EADSY.PK) continue to ramp up commercial aircraft deliveries in … Read more

Our Case for Precision Castparts — Upside to $200 Per Share

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Precision Castparts has long been a favorite of ours. The firm’s investment cast products segment (about 34% of sales) makes the structural castings (metal blocks) and the rotating airfoils (blades) that form aircraft jet engines. Though a structural casting has a longer useful life, a jet engine’s airfoil components frequently need to be replaced upon maintenance (think razor, razor-blade model). The firm’s forged products (about 41% of sales) are used in landing gear, bulkheads, and other airframe components, while its fasteners (about 25% of sales) are used in such critical applications as wing-to-fuselage and engine-to-wing connections. Precision’s components are crucial to flight safety, particularly its metal castings, which preserve engine integrity during intense thermal conditions. Plus, and perhaps most important, Precision … Read more

Sorting Through the Aerospace Supply Chain

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/273424-sorting-through-the-aerospace-supply-chain  As outlined in the previous two editions, The Future of the Narrowbody Market and How to Play the Upswing in Commercial Aerospace, expected deliveries of commercial planes are set to advance considerably in coming years. In this third edition, let’s dig into the valuation and potential upside of Precision Castparts (PCP), one of the best long-term plays on commercial aerospace demand. We’ll also dive into an interesting small-cap play and a compelling micro-cap opportunity in the aerospace supply chain. For new readers to this series of articles and analysis, let’s briefly review the trajectory of large commercial aircraft deliveries during the next several years. Aside from the fundamental drivers (replacement planes, … Read more

How to Play the Coming Upswing in Commercial Aerospace

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/272730-how-to-play-the-coming-upswing-in-commercial-aerospace In this, the follow up to our analysis of the narrowbody airplane market, let’s dive into just how robust the delivery upswing will be in commercial aerospace during the next few years and highlight a couple interesting, diversified ways to play the coming boom. We’ll also dive into one of the best aerospace names to own for the long haul, but leave open for Part III of this saga, an in-depth look at this firm’s valuation and the analysis of yet another intriguing play to capitalize on this multi-year cyclical upswing. First, let’s get a feel for what to expect from Boeing (BA) and Airbus during the next five years in terms of … Read more

The Future of the Narrowbody Airplane Market

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This article originally appeared on Seeking Alpha. Please view disclosures: https://seekingalpha.com/article/272454-the-future-of-the-narrowbody-airplane-market As many long-time followers of Boeing (BA) understand, the firm’s decision on what to do next with its workhorse 737 (the plane best known for being flown by low-cost leader Southwest) could make or break the company during the latter part of this decade and into next. One of the key things Boeing has been trumpeted for in the past has been its keen foresight in building the revolutionary, mostly-composite, point-to-point aircraft–the 787 Dreamliner–while its main rival Airbus pursued the gargantuan A380 double-decker, the latter betting on the proliferation of the hub-and-spoke model and high-density flights between major airports across the globe. Though there is a market for both the … Read more

Boeing Has Upside, Suppliers to Benefit From Boom

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With the first delivery and ramp up of Boeing’s (BA) revolutionary 787 Dreamliner, the reintroduction of its 747 platform, and rate increases on its workhorse 737 line, investors should expect a fairly significant ramp up in commercial aircraft deliveries, which remain supported by a massive backlog of unfulfilled orders. Impressively, Boeing’s commercial backlog of 3,400-plus planes is roughly 7x this year’s expected commercial revenue, in dollar terms. Needless to say, parts suppliers like Spirit Aerosystems (SPR), Precision Castparts (PCP), Rockwell Collins (COL), Goodrich (GR), Honeywell (HON), United Technologies (UTX) and a variety of others (including engine-makers like GE) will benefit from the coming boom in aerospace. Click to enlargeFurther, drawdowns in inventories, which have been a cumulative drag of over $15 billion … Read more

8 Announcements and Top Research You May Have Missed

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8 Announcements. This article was sent to members via email March 27. By Brian Nelson, CFA Hi everyone, Brian here. Trust you are doing great! Here are eight announcements I want you to be aware of: Everything we do is for our members. We’re very proud of the outperformance of the Best Ideas Newsletter portfolio, that we’ve never had a dividend cut in the Dividend Growth Newsletter portfolio, that our high-yield ideas are holding up very well, and the success rates of the Exclusive capital-appreciation ideas and short-idea considerations are running at approximately 80%. We’re proud to be your research partner. The odds of a Fed rate cut are going up as yield-curve inversion continues to threaten. The risks are more behavioral in … Read more