By Alex Kolb
Oct 26, 2007
Precision Castparts Corp. (PCP) is doing a great job of returning value to shareholders as evidenced by PCP’s return on equity (ROE) of 26%. This figure is more than double the industry’s average of 11%. The company recently delivered fiscal second-quarter net income of $1.68 per share, surpassing last year’s $1.03 and exceeding the consensus estimate by two cents. PCP’s earnings per share have outpaced Wall Street estimates over the past five consecutive quarters.
Full Analysis
Precision Castparts Corp. is a worldwide manufacturer of complex metal components and products. The company is a market leader in manufacturing large, complex structural investment castings and is a leading manufacturer of airfoil castings used in jet aircraft engines. In addition, the company has expanded into the industrial gas turbine, fluid management, industrial metalworking tools and machines and other metal products markets.
The company recently delivered fiscal second-quarter net income of $1.68 per share, surpassing last year’s $1.03 and exceeding the consensus estimate by two cents. PCP’s earnings per share have outpaced Wall Street estimates over the past five consecutive quarters.
Analysts are upbeat on the company. Current third-quarter earnings forecasts of $1.71 per share are five cents higher than last week’s estimates and six cents ahead of the analyst expectations that were issued two months ago. Full-year projections for the year ending March of 2008 stand at $6.86 per share, compared to last week’s expectations of $6.78. Two months ago, the consensus estimate was pegged at $6.74.
Precision Castparts Corp. offers a dividend yield of 0.1% right now. This is higher than its industry average dividend level of 0.0%.
The company is doing a great job of returning value to shareholders as evidenced by PCP’s return on equity (ROE) of 26%. This figure is more than double the industry’s average of 11%.
PCP Precision Cast Parts
If Precision Castparts is added to the S&P 500, about 12 million shares of the company would have to be bought by funds that replicate the performance of the index, the analyst wrote, adding that he expects the shares to rise as high as $130.
The Portland, Oregon-based company fell $1.06 to $113.98 at 4 p.m. in regular New York Stock Exchange composite trading. They have rise 90 percent over the past year.
Globally, the recent targets have focused on the non-sheet segment, in favor of structural steel products used in non-residential construction and the energy markets.
Zacks Equity Research submits: Precision Castparts Corp. (PCP) manufactures metal components and products for aerospace, power generation, general industrial and automotive markets. It operates in three segments: Investment Cast Products, Forged Products and Fastener Products. Also, the company was added to the S&P 500 in late May.
On May 9, the Zacks #1 Rank stock reported fiscal fourth-quarter earnings of $1.39 per share, up from 74 cents in the year-ago period and 12 cents above expectations. Continued strength in the commercial aerospace market drove revenues to $1,546 million, up 64% from the prior-year. All segments reported double-digit percentage increases in revenues. Investment Cast Products reported a 13.5% increase in sales to $477.3 million. Forged Products increased fourth quarter sales by 201.5% to $727.8 million. Lastly, the Fastener Products segment reported sales of $341.4 million, up 21.8% from last year.
A portion of the company’s most recent profits have been due to a successful acquisition strategy. Mark Donegan, CEO, commented, “Special Metals has certainly performed well beyond our initial projections and we have solid plans in place for continued upside. The company will remain relentlessly focused on cash…providing a solid platform for further profitable growth.”
On Jun 18, Precision Castparts announced that it will acquire Caledonian Alloys Group, a Scottish company that recycles nickel superalloy and titanium for the aerospace and industrial gas turbine industries. The acquisition is expected to close in the second quarter of fiscal 2008 and will add immediately to earnings.
Following the company’s sixteenth consecutive earnings surprise, full-year fiscal 2008 estimates were increased by 52 cents to $6.04. Since then, estimates have been raised two additional times, most recently by three cents to $6.08. Fiscal 2009 projections have been guiding higher as well and currently stand at $7.02, implying year-over-year earnings growth of 15.5%. Furthermore, the company is ranked number one out of 26 companies in the Aerospace-Defense Equipment category.
Over the last four years, PCP has returned an average of 60.2%. This impressive trend is looking to continue as PCP has climbed over 55% year-to-date and is trading against record highs. In support of renewed momentum, the MACD line made a convincing cross above the signal line on Jul 2:
Precision Castparts (PCP) makes metal components and products used in aircraft engines, industrial turbine engines, airframes, medical prostheses, and other industrial applications. If you're looking for the next big thing of the information age, this is not the stock for you. Investors looking for a well-established yet fast-growing business, on the other hand, might find Precision Castparts of interest. In its last quarterly earnings report, the company reported a 69% increase in earnings for the latest quarter on a 62% gain in sales. At $103.88 currently, the stock is up nearly $40 since we wrote about it last July.
This is a fairly large company with sales of $4.79 billion in the past year. Precision Castparts has a market capitalization of $14.2 billion. Profits are large as well, with the company expected to deliver earnings of $4.30 per share this fiscal year ending March 30. That's a 67% increase from ! FY2006 and up from $1.82 in FY2005. The consensus is for EPS of $5.41 next year.
Those are some big numbers driven by the cyclical upturn in the aircraft industry which it serves. The aerospace industry has very long and often severe ups and downs, so when the cycle starts to turn up as they are doing now, investors find stocks like PCP very attractive as they anticipate a multi-year boom for the business. Plane makers like Boeing (BA) and Airbus have received some big orders in the past few years, igniting a fire under aviation component suppliers.
Investors started pouring into this stock in early 2003. PCP has come from the low-teens then (split-adjusted) to triple digits now. Fortunately, Precision Castparts has the numbers to back up that performance. Earnings have averaged 64% annual growth over the past five years. The stock is trading at a Price/Earnings (P/E) ratio of 19.2 using for ward 12-month estimates.
In addition to the rebound for the commercial aerospace industry, military spending has been a source of strength for aircraft component suppliers. There is concern about the health of the U.S. airline industry, though. Most of the new plane orders have been from European and Asian carriers. The U.S. airlines are in very strained financial positions, so bankruptcies and consolidation are the order of the day rather than orders for new planes.
For the next few years, though, the business outlook for Precision Castparts looks very rosy indeed. Some analysts expect the commercial aircraft recovery to extend over the next four to five years. Annual sales for Precision Castparts are expected to swell to $5.3 billion for the fiscal year just ending and $6.2 billion next.
The company raised its dividend several times in the last two years, but it's not a high-yielder at just 0.10% currently. Income potential isn't what will draw investors to this stock, though, it's for those who are looking to the catch the powerful wave of a recovery in commercial aerospace and the big profits that a supplier like PCP can earn. This stock has already come a long way in the past few years, though, so investors should have a firm awareness of where we are in the cycle and how much of the future boom is already priced into the stock.
