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On May 13, 2013, the shares of Rockwell Collins Inc. (COL - Analyst Report) climbed to its 52-week high of $65.77 primarily driven by strong results in the second quarter of fiscal year 2013 and effective cash deployment strategy. We believe stable financial position, increase in dividend rate and an ongoing share repurchase program have also led the company’s share to attain this high.

Rockwell Collins supplies communications and avionics equipments to the commercial and military customers. The company’s service to these customers allows it to utilize government funding to develop products for the dual-end market. This effort subsequently leads to higher volume sales, which creates economies of scale in cost-sensitive government contracts.

Rockwell Collins’ original equipment manufacturer market has been stimulated with rising airplane deliveries at The Boeing Company (BA - Analyst Report) and Airbus. In addition, the company is observing a revived business jet market with rising original equipments and progressing aftermarket fortunes.

Rockwell Collins has rewarded shareholders by returning a substantial portion of its free cash flow through share repurchases and incremental dividends over the years. During the second quarter of fiscal year 2013, the company repurchased 1.4 million shares of common stock at a total cost of $84 million. Currently, the company has share repurchase authorization of $500 million.

However, we are apprehensive about the U.S. government’s delayed funding authorizations, program execution risks, dependence on international sales and high exposure to fixed price contracts.

Rockwell Collins’ fiscal year 2013 earnings guidance ranges from $4.45 to $4.65 per share. The Zacks Consensus Estimate for fiscal year 2013 is $4.60 per share, up 4.26% year over year. We expect the company’s long-term earnings growth to be 8.93%.

Rockwell Collins currently has a Zacks Rank #3 (Hold). Apart from Rockwell Collins, other stocks in the sector that are worth considering include Alliant Techsystems Inc. (ATK - Analyst Report) and Astronics Corporation (ATRO - Snapshot Report) with a Zacks Rank #2 (Buy).

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