Precision Castparts Corp. (PCP) has large exposure to the continuing manufacturing of Boeing 787 aircraft, with the fundamentals and demand remaining largely intact despite global macroeconomic concerns, says Michael F. Ciarmoli, Vice President and Equity Research Analyst at KeyBanc Capital Markets Inc.
“We also recently upgraded Precision Castparts to ‘buy,’ probably one of the higher-quality management teams, one of the more unique and differentiated business models in the sector. It’s a larger-cap name, $27 billion market cap, but when we’re looking at this mix of which companies are leveraged to the OE production cycle, we really do favor Precision Castparts‘ end-market profile: A lot of exposure to the Boeing 787, roughly $12 million of content, so as that platform begins to ramp up to 10 per month in the latter portion of 2013 and into 2014, we see PCP being a big beneficiary,” Ciarmoli said.
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Ciarmoli says the broader industrial complex has seen weak international growth and uncertainty, creating investor angst. The commercial aerospace group, however, maintains much of the old story thanks in part to the long build cycles of aircraft.
“The demand drivers underpinning new aircraft production and deliveries remain largely intact, and I am finding that investors don’t have to concern themselves with some of these short-term macro fluctuations, whether it’s a crisis in Cyprus or weakening consumer spending. What we’re seeing is that investors who have been invested in some of the other industrial names — where outlooks have been unpredictable, earnings reports have been mixed — we’re seeing more interest and more money flow into the commercial aerospace sector,” Ciarmoli said.
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