Astronics (ATRO) posted excellent third quarter results Thursday that showed both strong sales and earnings expansion. We are maintaining our above-market $47 fair value estimate (click here for our report), which represents about 15.6 times earnings if we annualize this quarter’s ($0.52 per share). The bottom line expanded over 40% this quarter. Needless to say, its price-earnings-to-growth (PEG) ratio is among the best out there. We will be retaining our outsize position in our Best Ideas Newsletter.
Astronics’ top line reached a record, advancing 13%, while diluted earnings per share jumped 41%. Commercial transport revenue jumped 23%, while sales from its business jet segment increased 20%. The firm’s gross margin ticked down about 0.5 percentage points, which directly impacted the operating line, as SG&A as a percentage of revenue held relatively steady at 11.3% of sales. The firm’s operating margin was 14% in the third quarter and, on a year-to-date basis, advanced 1.5 percentage points from the same period last year. Astronics noted that net income was a record, at about 12% of sales, thanks in part to lower interest expense and a lower tax rate.
Importantly, however, the firm achieved record quarterly bookings of nearly $65 million - up 6% year-over-year and 12% sequentially. We view the bookings number as particularly positive, as it is greater than quarterly revenue ($56.4), but also in that it signals that our thesis on the aerospace industry remains spot on. We continue to believe that commercial aircraft build rates by Boeing (BA) and Airbus (OTC:EADSY) will remain strong for the next few years, and Astronics - with its electrical content (cabin electronics, aircraft lighting and airframe power) - will be nicely positioned to reap the benefits of this growth curve. Astronics’ aerospace backlog was $101.4 million at the end of the third quarter (up from $102 million at the end of the second quarter), as order momentum continues.