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  • Commercial Programs Drive CPI Aerostructures' Growth 0 comments
    Jul 23, 2014 7:03 AM | about stocks: CVU, BA, LMT

    (click to enlarge)CPI Aerostructures, Inc. (NYSE: CVU) announced a few weeks ago that it received orders from Cessna Aircraft Company to supply wing spar assemblies on the Citation-X, the company's flagship aircraft. The contract is valued at $4 million and is an add-on contract sealed under a long-term agreement with Cessna in 2012. As of now, total firm orders are valued at $9.3 million. The company expects the total value of the long-term contract to be at $41 million up to 2019.

    In the most recent quarterly announcement, CPI Aerostructures' President and Chief Executive Officer, Douglas McCrosson, said that these types of commercial deals will be the main driver of revenue growth for the coming years. Mr. McCrosson noted that the next target would be on large commercial aircraft. In fact, the company has already submitted proposals on the Airbus A380, Airbus A350, Boeing's (NYSE: BA) 747 and other commercial airliner programs.

    Conversely, Mr. McCrosson noted that military budget cuts have continued and estimated defense spending over the coming years is expected to have flat growth. Even big defense contractor Lockheed Martin (NYSE: LMT) is looking at new markets amid continuing budget defense cuts. The company is ramping up its efforts to sell stealth fighter jets to foreign nations to protect the jobs of its workers in Fort Worth.

    It looks like these big defense contractors will be a threat to small contractors like CPI Aerostructures Inc. in the commercial space. The only way to compete with these contractors is to offer differentiated services to its clients at reasonable costs. Thus, the company has taken a smart move to enhance its overall manufacturing capabilities and offer more complex structural assemblies to their clients.

    Its ability to win more contracts will include quality of the service, competitive pricing and the ability to cater to clients' problems immediately. As a result, the company completed a major overhaul of its system that will result in efficient resource planning, purchasing and order management processing. The company has also hired additional workforce and invested in skills training programs to ensure that workers have the necessary knowledge to execute their clients' specifications. Further, CVU has also spent money on new manufacturing technologies and production floor software to increase output, quality and lower production costs.

    The company provides a revenue guidance of $83.5 million to $85 million in 2014, driven mostly by its commercial programs HondaJet, Cessna Citation X and Embraer Phenom 300 business jets. This translates to an operating cash flow of $1 million to $1.25 million, albeit lower than 2013, as it continues to make investments in new programs.

    Year-to-date, share price has declined by more than 18 percent. However, investors can register strong capital gains from this stock once the market discounts the growth potential of its commercial programs.

    Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: CVU, BA, LMT
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