Precision Castparts: Rising Margins, Sinking Share Price

If you look at the disaster that has been Precision Castparts (PCP) this last 6 months, you've got to think "There but for the grace of God go I". PCP is down over from $150 to $100.

I think this is a great buy here.

PCP operates forges that supply the aerospace and industrial turbine gas turbine engines. For instance, they make the castings for the GenX engines that run airplanes. They sell to GE (GE), UTX (United Technologies), and Rolls Royce. They've been killed in part because of concerns that Boeing (BA) is delaying the Dreamliner and that the global economy will slow and lead to a decrease in business.

Their CEO, in his last conference call and recently in the JP Morgan transportation conference reiterated that:

1. They have "unprecedented demand";

2. Many "accelerators of growth" and;

3. "Cost reductions" to give an ever improving operating margin.

The numbers support their CEO's optimism.

First, over the last 15 quarters (as far back as I went), their revenues have consistently increased quarter after quarter except for a slight decline last quarter, owing "to fewer available manufacturing days" (CEO explanation).

Second, the earnings per share have also increased every single quarter, a rare feat.

Finally the operating margins have increased over the last 5 years, once again every single year better than the last. This is despite lots of growth in their business both organically and through acquisition.

I think this is a company that will consistently grow revenues, earnings, and operating margins and should recover its stock value. The market is frightened that someday they're business will be adversely impacted, but they haven't seen a slow down and they've been performing exceptionally well.

Comments

[Gajonka:]

I agree. Stock is #2 in its space, little debt. A good asset for any company in the sector. Many brokers have 150 px tgt. Not sure if you mentioned the Power Generation side of the business. That is where the fastest growth is. So you get a C+

2008 Mar 28 08:13 AM

[wickedwilly:]

dividends///stock buybacks///taking care of stockholders during good times is not a priority for PCP

2008 Mar 30 01:51 PM

[Bailey B.:]

The airfoils division alone is anticipating >25% growth before the end of FY09, year over year. Driven primarily by constant IGT growth. New foundry production lines are currently being installed which will allow for this growth to be captured. Process standardization and resource sharing between facilities will be a driving factor for margin growth, ultimately by reducing costs.

2008 Mar 31 06:57 PM

[Gajonka:]

Dividends and buybacks are for companies with a poor outlook. No need for those measures with pcp the cash is flowing in!!

2008 Apr 02 10:23 AM

[User 172657:]

All is true what you say here. But!! This company has nothing to do with the science of leadership and motivation. It is a regiment following the leaders without any hesitation. Nothing is needed here what belongs to a modern company aware of the importence of creativity and positive attitude. The BIG BOSS thinks he is the devil and he requires complete obedience from everybody in the organisation. No opinions, no comments. Such a company will fall with the first signs of a downturn because they don't have the tools to handle any change.

2008 Apr 03 07:35 PM

[Gajonka:]

172657- say no to drugs.

2008 Apr 04 09:02 AM