Precision Castparts Corp. (NYSE:PCP) is a Fortune 500 company that is headquartered in Portland, Oregon and manufactures metal products and components for the general industrial, power and aerospace markets. PCP was founded in 1953 by Joseph B. Cox and was incorporated in 1956, the year after it expanded and moved to a larger facility.
There are many noteworthy past achievements in Precision Castparts Corp. While many manufacturers stayed single tracked, and came and went, PCP stayed well diversified in its portfolio of companies.
During the 1960s, PCP started securing major contracts for providing jet engine parts and, in 1967 they garnered a contract with General Electric (NYSE:GE) to deliver the parts for the TF39 engine, as well as a significant contract with Pratt & Whitney. In 1968 the company went public and started working with Boeing (NYSE:BA) as well. In addition to all of their aeronautical ventures and partnerships, PCP also began to cast body part replacement parts for the medical prosthesis industry, including knees and hips.
During the early 1980s, PCP expanded their manufacturing facilities and then, in 1985, a European titanium plant was among its many acquisitions along with a new French plant that they built in 1986, as well as several companies like the British AETC Limited and Airfoils. PCP continued their successful acquisitions into the early 1990s when they acquired ACC Electronics, Quamco, Olofsson Corporation, Astro Punch, and Advanced Forming Technology. In the late 1990s, PCP acquired Pittler Maschinenfabrik GmbH, Schlosser Casting Company, and J&L Fiber Services.
PCP continued to grow by leaps and bounds during the next ten years and acquired numerous additional companies worldwide in the U.S. as well as Australia, Romania, Switzerland, and Scotland, one of the largest being Wyman-Gordon Company in 1999 for $990 million. PCP's other accomplishments during that particular period included building plants worldwide, including China, the Czech Republic, Hungary, Malaysia, and India.
A massive plant expansion in the Portland Metropolitan area in 2006 earned PCP some very nice tax breaks that further bolstered their bottom line and, in 2007, the company wanted to expand their fastener business, so they bought Cherry Aerospace to accomplish that new goal. That same year, their revenue increased to $5.4 billion, an increase of 52 percent over 2006's $3.5 billion.
In 2011 PCP purchased Primus International Inc. for the sum of $900 million. Primus was a major supplier of airplane parts for Boeing and Airbus at the time. Then, 2012 brought the acquisition by PCP of Centra Industries Inc, a major manufacturer of aircraft parts for Lockheed Martin (NYSE:LMT), Boeing , Bombardier (TSE:BBD.A), Northrop Grumman (NYSE:NOC), Mitsubishi Heavy Industries (NYSE:MTU), and Spirit AeroSystems (NASDAQ:SAVE). This acquisition included two large Canadian aircraft plants. Other 2012 acquisitions included Texas Honing, Titanium Metals Corp., Klune Industries, RathGibson, LLC, Synchronous Aerospace Group, and McSwain Manufacturing.
Among the products that PCP currently manufactures are:
· Critical fasteners for aerospace applications
· Commercial and military airframe aerostructures
· Metal alloys for the forging and casting industries
· Airfoil castings for industrial gas turbines
· Complex large structural investment castings
· Extruded seamless pipe and fittings for gas & oil applications
· Medical prostheses parts
· Jet engine airfoils
· Gas turbines for generating electricity
· Products for the paper industry
· Defense industry parts
· Automotive industry parts
· For each Boeing 787 Dreamliner built, PCP generates $1.5 million in revenue
PCP manufactures their products via the following divisions:
[1.] Investment Cast Products
· PCP Airfoils
· PCP Structurals
[2.] Forged Products
· PCP Energy Group
· Special Metals Corp. (SMC)
· Titanium Metals Corp. (TIMET)
[3.] Airframe Products
· PCP Aerostructures
· PCP Fasteners
The trends and forces that could possibly adversely affect PCP are:
[1.] Raw materials availability
[2.] The economy and the U.S. defense budget
[3.] Aerospace market demand, especially from Airbus and Boeing
[4.] Competition in the cast, forged, and fastener products segments
PCP currently has 191 manufacturing facilities that employ 27,850 employees worldwide. With $10.5 billion in assets, the corporation was ranked number 362 on the Fortune 500 list and also ranked number 11 in the Defense and Aerospace Industry in 2009.
Profits are still plentiful
PCP reported net income for the fourth quarter 2012, which was up by 23 percent over the same quarter in 2011, of $415.1 million and earnings per share were up by 51 cents from $2.31 in 2011's fourth quarter to $2.82 in 2012. Total sales were also up by 25 percent, totaling $2.44 billion.
With record order books for airplanes, prosthetic replacements for wounded warriors, and car sales continuing to climb PCP is perfectly positioned to continue to reap rewards. The defense industry, aerospace industry and auto industry are all coming off record quarters. PCP sees its profits generated in all three verticals.
The stock is near a 52 week high of $212.01 but is still very reasonably priced at just 21.55 current earnings. Another favorable factor is the many institutions which own a collective total of 96% of the total shares outstanding. Many of the biggest mutual fund companies are included such as T. Rowe Price, Vanguard Group, Bank of New York Mellon, State Street Corp, and Janus Capital Management. Also of note is the sizable stake that BlackRock Institutional Trust has.
I'd be proud to own stock alongside any one of these institutions. I think it is far to say this comes as a strong vote of confidence in PCP.
Fellow SA Contributor Valuentum recently showcased PCPs astonishing ability to generate impressive growth despite its already massive size.
PCP stock was recently upgraded by KeyBanc from hold to buy and analysts have stated their belief that PCP can offer to investors a "compelling play on the commercial aerospace OE production cycle at reasonable valuation." Analysts also are anticipating a deal related synergy along with other benefits from the increased rates of production at Airbus and Boeing.
A slew of other upgrades have come in over the last several days as well.
Today, just about every single aircraft worldwide flies the friendly skies with the help of PCP manufactured parts. In addition, diversification is also an important part of PCP's strategy, so its continued financial success is not dependent on the aircraft industry alone. A multi-cog machine is what PCP has assembled and I'd expect it to print money for some time to come.