Boeing (BA) and Airbus have been reporting increasing orders as airlines are trying to replace aging fleets with newer, more energy efficient aircraft. Not sure which airplane manufacturer is the best buy? Below I talk about several of the parts suppliers that supply both of those companies as well as other smaller airplane manufacturers. This will help you capitalize on increasing orders from all of the big makers.
BE Aerospace, Inc. (BEAV): Its corporate profile on its website reports that "BE Aerospace is the worldwide leading manufacturer of aircraft passenger cabin interior products…[and] also the leading global distributor of aerospace fasteners." BE Aerospace was just awarded an exclusive contract to manufacture the modular lavatory systems for Boeing's 737 next-generation aircraft. According to the recent release the award is estimated over $800 million. According to end of 2011 results, revenues for the year increased 26% (16.5% organic and 9.5% from acquisitions.) The release also reports that BE Aerospace predicts an 18% increase in revenues for 2012. I think this is very reasonable given the Boeing contract. I wait for a slight pull back of $1-$2 and then buy in. I think some of the growth predictions are already factored in but the real pop will happen after first quarter results if they prove the 2012 estimates. I think we could see shares near $60 by the end of 2012. BE Aerospace will see increased orders from all airline manufactures based on the increase in airplane orders and retro-fits to increase efficiency. It doesn't deal directly with DoD and should see minimal adverse effects if any from reduced government spending.
Goodrich Corp (GR): Its products range "[f] From aerostructures, actuation and landing gear systems to engine controls, sensors and ISR systems," according to its website. It just signed an agreement with Southwest Airlines (LUV) to supply wheels, brakes, and other services for the new 737-800 fleet and a separate contract with LOT Polish Airlines for engine overhaul on all their Embraer (ERJ) 195 aircraft. In 2011 Goodrich agreed to be acquired by United Technologies (UTX) for $127.50/share. This deal is supposed to close in the middle of 2012. If the deal closes then shares will stay near the current levels, if the deal fails then I think shares will plummet back to near pre-acquisition news price levels around $90/share. If you own it, sell it now and enjoy the profits, don't risk it and wait for the extra $2.50. Don't buy in right now for any reason. I think on its own shares would see $100 by the end of 2012. It is poised for 15% growth in 2011 that I think will continue for 2012. Lots of its business comes from aircraft maintenance; given the presently increasing used aircraft market, Goodrich is keeping very busy. Even with defense spending decreasing, namely for new aircraft, spending to keep older equipment operational will be paramount and increase.
Hexcel Corporation (HXL): On its website it boasts being a world leader in carbon fiber and composite materials. Over half of new modern aircraft are made up of advanced composites because of their strength and light weight. According to recent releases Hexcel's sales by segment (commercial aerospace, space & defense, industrial) in 2010 were 55%, 26%, and 19% respectively while in 2011 they were 59%, 23%, and 18% respectively. 2011 sales increased 19% over 2010. Even in the face of declining defense spending Hexcel was able to increase sales. 2012 guidance calls for an increase in sales of 14%. Around 82% of the sales increase was related to Airbus, Boeing , and their respective subcontractors. With both of those companies having positive outlooks with increase business, it stands to reason that Hexcel will see increased business as well. I think Hexcel will see growth closer to this year's rate or about 5% over its 2012 guidance. I think we'll see shares in the low to mid $30s by the end of 2012 and closing on $40 by the end of 2013.
Transdigm Group Incorporated (TDG): On its website it says that it "is a leading global designer, producer and supplier of highly engineered aircraft components for use on nearly all commercial and military aircraft in service today." It provides engine technology, specialized pumps, specialized electric motors and generators, cockpit security components, and specialized cockpit to name a few components. Over 75% of sales are on products that only Transdigm offers; 56% of sales are from aftermarket revenue based on original sales. In its end of 2011 results release it reported sales rose 46% with 12% of that being organic growth and net income rose nearly 35%. The company predicts sales growth of around 22% for 2012 which includes a calculation for a decline in defense sales. The company increased guidance based on these results and around the time of reporting first quarter earnings saw shares shoot up nearly $30 to their current price point. It has also continued on its path of strategic acquisitions and completed one earlier this month. I think Transdigm is overbought here. It has a current P/E of 28x 2012 projections. While it is growing fast through acquisitions, it is using debt to finance many of these deals. At some point the growth will have to slow so that Transdigm doesn't take on more debt that it can handle. If you own it, I would take some profits and hold the rest. If you want to buy in I would wait for a pull back to the $110 mark. I think shares have more growth to come, but it will be much slower now that it has been a stand out and attracted so much attention. I think $130 by end of calendar 2013 would be a safe and sustainable mark.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.