Back to top

Analyst Blog

Shares of Precision Castparts Corp. (PCP - Analyst Report) reached a 52-week high of $273.08 on Friday, Jan 10, 2014. However, the stock closed at $271.22, representing a one-year return of about 44.4% and a decent year-to-date return of about 0.71%. Average volume of shares traded over the last three months stands at approximately 531,744.

Increased demand in the commercial aerospace division, strong oil and gas businesses and strategic acquisitions are some of the growth catalysts. In addition, Precision Castparts reported improved results for the second quarter of 2014.

The company delivered positive earnings surprises in two of the last four quarters with an average beat of 0.18%. This Zacks Rank #2 (Buy) company has a market cap of $39.04 billion and a long-term expected earnings growth rate of 13.2%.

Precision Castparts' Strengths

Precision Castparts is all set to benefit from growth in its Aerospace and IGTbusiness. Currently, the aerospace market looks promising and is also expected to grow in the near future. Also, sales expectations in both Airframe products and Forged Products are promising, thanks to the increasing production levels of Boeing 787.  

Further, the company is continually focusing on expanding its product lines and markets. Precision Castparts completed twelve acquisitions in fiscal 2013, the most recent being that of Permaswage SAS for $600 million in an all cash transaction. The combined contribution of these acquisitions was approximately $400 million to sales in fiscal 2013. These acquisitions will add to the company’s diverse operations, thereby benefiting it in the future by improving its sales and strengthening its position in the global market.

Apart from these, the company has reported steadily rising earnings per share (EPS) with an annual growth rate of 18.7% over the last decade. This in turn results from steadily rising earnings that do not vary greatly through a full business cycle. The company’s multiple business lines with different business cycle patterns helped it with steady earnings over the year, even when the aviation market was weak. Precision Castparts has had net profit margins in the range of 6.2% to 17.1% over the last 10 years with an average net profit margin of 12.3%. The company also had a return on equity in the range of 9.8% to 28.1% during the last 10 years.

Improved 1Q14 Earnings

Precision Castparts Corp. reported strong second-quarter fiscal 2014 results with record revenues and earnings per share from continuing operations. Net income from operations increased 27.7% to $424 million in the reported quarter from $332 million in the prior-year quarter.

The company reported earnings from continuing operations of $2.90 per share, which beat the Zacks Consensus Estimate of $2.82 by 2.8%. Quarterly earnings were up 27.7% year over year from $2.27 in the second quarter of fiscal 2013.

Revenues increased 22.6% year over year to $2,362 million from $1,927 million in the prior-year quarter, primarily driven by organic growth of 6%.

Estimate Revisions

Over the last 90 days, the Zacks Consensus Estimate for 2014 grew 0.4% to $12.10 per share and grew 0.6% to $14.04 per share for 2015.

Conclusion

The improved results in the recently reported quarter came on the back of increased demands in the commercial aerospace as well as strong oil and gas businesses. Two of the three reporting segments posted double digit revenue growth during the quarter. Furthermore, IGT is also showing good momentum in its aftermarket backlog and the company expects its major end markets to drive organic growth.

Other Stocks to Consider

While Precision Castparts currently has a favorable Zacks Rank, investors interested in metal products and the aerospace sector can consider Alliant Techsystems Inc. (ATK - Analyst Report), Elbit Systems Ltd. and Orbital Sciences Corp. (ORB - Snapshot Report). All three carry a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.