Three Aerospace Stocks for 2013
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Planned cuts in defense spending should not substantially impact the earnings of certain aerospace suppliers, as their customer bases are primarily corporate. Outlooks remain favorable for this year, given increased spending plans by air carriers on equipment. Indeed, carriers are replacing older aircraft with more efficient models. Plus, the business jet market is poised to turn around somewhat, behind reduced aftermarket availability and better credit conditions. Here are just some of the possible investment opportunities.
LMI Aerospace (NASDAQ: LMIA)
This is a small-cap (about $260 million market capitalization) entity that completed an acquisition at yearend 2012 of Valent Aerostructures. LMI provides components to the large commercial aircraft industry, and is focused on expanding and developing new capabilities. The Valent purchase complements its existing business, as it too serves Tier 1 suppliers and original equipment manufacturers.
When LMI reports full-year 2012 earnings on March 12, it will likely post share net of around $1.77, up from $1.44 in the prior year. For this year, the inclusion of Valent ought to be a boon to share profits, and growth might well range from 20% to 25%. Take note of management’s guidance on the 12th, however. In addition to the integration, it appears that investments in operations, including employee hiring might squeeze margins this year a bit.
LMI issued about $225 million in debt financing for the Valent purchase. Still, its balance sheet is liquid, and LMI should have adequate financing for further capital projects or buyouts. In all, due to the caution in the market surrounding aerospace/defense stocks, at their recent quotation LMI shares look appealing as a long-term holding, particularly if results and guidance are as anticipated.
Astronics (NASDAQ: ATRO)
Astronics produces such aircraft-related products as lighting, power, and electronics systems. It serves OEMs, and 70% of its 2012 sales were derived from the commercial transport market. Another 12% stemmed from business jet makers, and just 14% was military. One customer, Panasonic Avionics, contributed 38% of 2012 revenues, and that proportion is growing. Still, Astronics’ strategy of market share gains, partly by way of acquisition, seems sound.
In fact, revenues are apt to rise in the neighborhood of 10% this year, boosting the bottom line upwards of 30%. Costs per system are on the decline. R&D spend is targeted to approximate the 2012 total of $45 million, as Astronics aims to improve current technologies. These efforts should position the company for long-term profit gains.
Based on solid top-line increases from the commercial transportation operation, specifically for electrical components, the profit outlook is outstanding. Of course, budget constraints will limit results in the military business for now. Nevertheless, ATRO shares are a good selection for long-term appreciation potential. The company is, notably, also a small cap that may exhibit heightened volatility.
BE Aerospace (NASDAQ: BEAV)
Here’s another company poised to perform very well in 2013. Management guided toward a share-earnings increase of 22% this year, based on a strong backlog, high level of wide-body aircraft deliveries, a slower aftermarket, and margin improvements. Both its commercial and business jet units booked record orders during 2012. Commercial orders are likely to accelerate in the back half of the year, while jet sales should climb by a single-digit percentage, followed by a double-digit advance in 2014. The business jet market had been struggling until last year, as seen in the drop in deliveries reported by the likes of Textron’s Cessna unit (see my previous blog). But, a continued upturn would enhance results.
A much larger company than the other two, BE has size and scope, as well as several trends in its favor. I like the shares for long-term price upside potential.
In light of the reinvigorated airline industry, marked by several mergers, the latest being American/US Airways, plans to replace older fleets are in place. Furthermore, the corporate jet market may well be turning, albeit slowly. Thus, aircraft manufacturing OEM suppliers appear to be decent investments at this juncture.
dctotal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!