Tweet
When $$$MR. MARKET$$$ was a strapping young teen, one of his first summer jobs was working for the Boston Parks and Recreation, lining the baseball fields and emptying trash cans. Some of the other less than intelligent teens working in the crew always seemed to do much less work than $$$MR. MARKET$$$, often times disappearing for some time.
Anyway, even a young $$$MR. MARKET$$$ was no easy mark, and he quickly took matters into his own hands. One day, he followed the group of wayward teens on one of their excursions away from Healy Field. $$$MR. MARKET$$$ discovered that the youths were smoking “Angel Dust” or PCP and, being disoriented, were not able to find their way back to work. This early exposure to PCP made $$$MR. MARKET$$$ very furious, since these wastes of sperm were making $$$MR. MARKET$$$ do all of the hard work. Not one to deal delicately with such matters, $$$MR. MARKET$$$ forced the 3 hazy youths to turn over their stash and he altered the quality of the PCP by blending it with hot urine. Never again for the rest of the summer did these 3 youths ingest PCP while on the job. In fact today, they are all now successful businessmen in the Boston area.
Today I bought Precision Castparts Corp. (PCP) at a price of 145.25. I will sell it in 4 to 6 weeks at $167.29. Here is why I love PCP:
PCP manufactures complex metal components and products, investment castings, forgings and fasteners/fastener systems for aerospace and industrial gas turbine (IGT) applications. The Company
also provides investment castings and forgings for general industrial, automotive, armament, medical and other applications; specialty alloys, waxes and metal processing solutions for the investment casting industry.
PCP’s stock is up over 130% in the last 12 months, yet its PE is only 27. It is an earnings machine, and its stock is getting rewarded. Look at this chart:
There has to be another 15% left in this run, especially given the price consolidation in the last month or so.
How come PCP is so interesting these days? It makes the high pressure discs, airfoil blades and chassis used to make the aircraft engines powering the latest Boeing and Airbus jets. The friendly skies have not been so friendly recently as airplanes are becoming stuffed the brim with passengers and fleets are aging. Plans for replacement planes that were put on hold due to 9/11 are now back in full swing. Look at the Boeing’s ridiculous 8% annual revenue growth over the last few years and you’ll know that they will be ordering a bunch of engines soon.
Boeing's deliveries shouldn't peak before 2013, at which point it will be delivering about 544 planes annually. The production of the 787 is still in its very early stages and PCP os actually increasing its market share of the Boeing customer base. A group of Chinese airlines ordered $7.3 billion in jets from Boeing recently and Qatar Airways divided $15.2 billion in orders between archrivals Boeing and Airbus. It doesn’t matter if it is Boeing or Airbus as they are both customers of PCP. Precision is just the company to service their needs and 12% organic sales growth will probably be there for the taking.
Precision is expanding rapidly to meet demand from the aerospace industry. They have budgeted investments in new furnaces, forges and titanium production facilities that will add significantly to annual revenue over the next couple of years. In addition, the aftermarket customer base (supplies to not-new planes) is also growing. The company has recently made acquisitions expanding its casting, forging and fastener product offerings, and these should fuel revenue growth. Even though this growth is exciting to management, PCP has a very disciplined valuation parameter model to evaluate candidates. Precision's net income has also been increasing as a result of strong top-line growth combined with an improvement in operating margin and a lower interest expense.
According to the company's last annual report, Precision's backlog of unfilled orders jumped 32% to $3.1 billion from 2005 to 2006, largely from aerospace orders. The company passed along additional increases in the price of raw materials to its customers. What’s more, they recently purchased Caledonian Alloys Group Limited. Caledonian is the market leader in providing nickel superalloy and titanium revert management solutions for the aerospace and industrial gas turbine industries. Revert includes metal chips, casting gating, bar ends, forging flash, and other byproducts from casting, forging, and fastener manufacturing processes that can be re-melted and reused. At today's metal prices, managing the revert stream is critical to managing their production cost structure.
Another important Precision market is parts for gas turbine power generators, another industry that is in the heart of growth and investment from deregulation. Precision also does a great deal of business with the military segments of Lockheed Martin and Boeing. Sales to defense suppliers are 20% of total revenue. Not only that, PCP makes seamless pipe for the oil exploration business, and everyone knows where THAT industry is going!
The most recent July earnings report is very compelling:
Precision Castparts Corp generated significant sales and earnings growth, both on a year-over-year and a sequential basis, for the first quarter of fiscal 2008, while aggressively integrating the recently acquired GSC Foundries, Cherry Aerospace, and McWilliams Forge businesses. Total sales of $1,660.1 million in the first quarter of fiscal 2008 jumped 49.2 percent over last year’s first quarter sales of $1,112.4 million. Net income from continuing operations also showed a marked year-over-year improvement, growing to $225.4 million this year, versus $114.5 million in the first quarter of fiscal 2007, and resulting in earnings per share of $1.61 , a 94.0 percent increase over earnings per share of $0.83 in last year’s first quarter. The results for the first quarter of fiscal 2008 include a full quarter of Special Metals, a full quarter of GSC Foundries and Cherry Aerospace, and nearly a full quarter of McWilliams Forge, which was acquired on April 3, 2007.
You sees? The numbers do not refute the growth story. This isn’t just a flash in the pan. PCP has been doing this for a while. PCP’s sales have grown from around $1.8 billion in 2003 to $5.4 billion in FY 2007. That’s the kind of growth that $$$MR. MARKET$$$ really really likes, particularly with companies of this size. You don’t see very many billion dollar companies that triple their sales in 3 years while still holding a PE of only 27. By garnering these higher sales volumes over a fixed asset base, the earnings have really been screaming, growing from $1.42 per share to $4.45 per share in FY ending April 2007. Indeed the 3 year historic growth rates for sales has been 41% and for earnings has been a ridiculous 59%. The financial performance supports this bright story. ROA is at 14%. ROI is at 19% and ROE is at 25%. These kind of numbers are amazing considering the size of this company! This makes the stock extremely attractive, in my opinion, considering its 20% projected earnings per share growth and strong balance sheet.
Where do I come up with this expected EPS growth? Well I certainly didn’t ask the ANAL-ysts. They expect a Sep 07 EPS of $1.64 and a current year EPS of $6.73. Wow..I am laughing so hard at these numbers that I sissed myself. First of all, PCP has been consistently blowing away the ANAL-ysts numbers by an average of 15% over the recent quarters. Remember the metals? It’s all in the metals. The price of ore has doubled in the past 5 years. These raw materials cost pass throughs alone will grow absolute earnings at even fixed percentage margins. $$$MR. MARKET$$$ sees a current year EPS of $7.51 per share. At these earnings, a PE of 27 will carry the stock price to $202.77, which is way past my price target.
What does the boss, Mark Donegan, think of all this?:
“We have positioned the Company extremely well to take full advantage of the upward trends in our major markets,” said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. “We are seeing extremely strong demand in the commercial aerospace market, with sustained growth in IGT and continued upside opportunities in non-aerospace markets served by extruded pipe and Special Metals’ nickel-based alloys. Over the past 12 months, we have added the necessary critical capacity to handle higher volumes, and we will be alert to any new market developments that might require further capital investments.
“In addition to our constant drive to capitalize on all areas of opportunity, the recent acquisition of Caledonian Alloys will enable us to capture more fully the value stream of metals crucial to our manufacturing operations,” Donegan said. “Caledonian will essentially create a closed-loop system for the retention and reuse of internally-generated revert and will enable us to gain access to additional sources of critical metals outside PCC.
“We will continue to focus on our businesses with unswerving, unrelenting attention to value creation and profitable growth,” Donegan said. “Acquisitions, supported by a strong balance sheet, will also be a key strategic driver for the future.”
This guy isn’t smoking PCP, he’s living it. With his stock options, he can probably afford a year long subscription to www.mrmarketishuge.com
Tell me what you think of this write up. I am HUGE!!
$$$MR. MARKET$$$
Anyway, even a young $$$MR. MARKET$$$ was no easy mark, and he quickly took matters into his own hands. One day, he followed the group of wayward teens on one of their excursions away from Healy Field. $$$MR. MARKET$$$ discovered that the youths were smoking “Angel Dust” or PCP and, being disoriented, were not able to find their way back to work. This early exposure to PCP made $$$MR. MARKET$$$ very furious, since these wastes of sperm were making $$$MR. MARKET$$$ do all of the hard work. Not one to deal delicately with such matters, $$$MR. MARKET$$$ forced the 3 hazy youths to turn over their stash and he altered the quality of the PCP by blending it with hot urine. Never again for the rest of the summer did these 3 youths ingest PCP while on the job. In fact today, they are all now successful businessmen in the Boston area.
Today I bought Precision Castparts Corp. (PCP) at a price of 145.25. I will sell it in 4 to 6 weeks at $167.29. Here is why I love PCP:
PCP manufactures complex metal components and products, investment castings, forgings and fasteners/fastener systems for aerospace and industrial gas turbine (IGT) applications. The Company
also provides investment castings and forgings for general industrial, automotive, armament, medical and other applications; specialty alloys, waxes and metal processing solutions for the investment casting industry.
PCP’s stock is up over 130% in the last 12 months, yet its PE is only 27. It is an earnings machine, and its stock is getting rewarded. Look at this chart:
There has to be another 15% left in this run, especially given the price consolidation in the last month or so.
How come PCP is so interesting these days? It makes the high pressure discs, airfoil blades and chassis used to make the aircraft engines powering the latest Boeing and Airbus jets. The friendly skies have not been so friendly recently as airplanes are becoming stuffed the brim with passengers and fleets are aging. Plans for replacement planes that were put on hold due to 9/11 are now back in full swing. Look at the Boeing’s ridiculous 8% annual revenue growth over the last few years and you’ll know that they will be ordering a bunch of engines soon.
Boeing's deliveries shouldn't peak before 2013, at which point it will be delivering about 544 planes annually. The production of the 787 is still in its very early stages and PCP os actually increasing its market share of the Boeing customer base. A group of Chinese airlines ordered $7.3 billion in jets from Boeing recently and Qatar Airways divided $15.2 billion in orders between archrivals Boeing and Airbus. It doesn’t matter if it is Boeing or Airbus as they are both customers of PCP. Precision is just the company to service their needs and 12% organic sales growth will probably be there for the taking.
Precision is expanding rapidly to meet demand from the aerospace industry. They have budgeted investments in new furnaces, forges and titanium production facilities that will add significantly to annual revenue over the next couple of years. In addition, the aftermarket customer base (supplies to not-new planes) is also growing. The company has recently made acquisitions expanding its casting, forging and fastener product offerings, and these should fuel revenue growth. Even though this growth is exciting to management, PCP has a very disciplined valuation parameter model to evaluate candidates. Precision's net income has also been increasing as a result of strong top-line growth combined with an improvement in operating margin and a lower interest expense.
According to the company's last annual report, Precision's backlog of unfilled orders jumped 32% to $3.1 billion from 2005 to 2006, largely from aerospace orders. The company passed along additional increases in the price of raw materials to its customers. What’s more, they recently purchased Caledonian Alloys Group Limited. Caledonian is the market leader in providing nickel superalloy and titanium revert management solutions for the aerospace and industrial gas turbine industries. Revert includes metal chips, casting gating, bar ends, forging flash, and other byproducts from casting, forging, and fastener manufacturing processes that can be re-melted and reused. At today's metal prices, managing the revert stream is critical to managing their production cost structure.
Another important Precision market is parts for gas turbine power generators, another industry that is in the heart of growth and investment from deregulation. Precision also does a great deal of business with the military segments of Lockheed Martin and Boeing. Sales to defense suppliers are 20% of total revenue. Not only that, PCP makes seamless pipe for the oil exploration business, and everyone knows where THAT industry is going!
The most recent July earnings report is very compelling:
Precision Castparts Corp generated significant sales and earnings growth, both on a year-over-year and a sequential basis, for the first quarter of fiscal 2008, while aggressively integrating the recently acquired GSC Foundries, Cherry Aerospace, and McWilliams Forge businesses. Total sales of $1,660.1 million in the first quarter of fiscal 2008 jumped 49.2 percent over last year’s first quarter sales of $1,112.4 million. Net income from continuing operations also showed a marked year-over-year improvement, growing to $225.4 million this year, versus $114.5 million in the first quarter of fiscal 2007, and resulting in earnings per share of $1.61 , a 94.0 percent increase over earnings per share of $0.83 in last year’s first quarter. The results for the first quarter of fiscal 2008 include a full quarter of Special Metals, a full quarter of GSC Foundries and Cherry Aerospace, and nearly a full quarter of McWilliams Forge, which was acquired on April 3, 2007.
You sees? The numbers do not refute the growth story. This isn’t just a flash in the pan. PCP has been doing this for a while. PCP’s sales have grown from around $1.8 billion in 2003 to $5.4 billion in FY 2007. That’s the kind of growth that $$$MR. MARKET$$$ really really likes, particularly with companies of this size. You don’t see very many billion dollar companies that triple their sales in 3 years while still holding a PE of only 27. By garnering these higher sales volumes over a fixed asset base, the earnings have really been screaming, growing from $1.42 per share to $4.45 per share in FY ending April 2007. Indeed the 3 year historic growth rates for sales has been 41% and for earnings has been a ridiculous 59%. The financial performance supports this bright story. ROA is at 14%. ROI is at 19% and ROE is at 25%. These kind of numbers are amazing considering the size of this company! This makes the stock extremely attractive, in my opinion, considering its 20% projected earnings per share growth and strong balance sheet.
Where do I come up with this expected EPS growth? Well I certainly didn’t ask the ANAL-ysts. They expect a Sep 07 EPS of $1.64 and a current year EPS of $6.73. Wow..I am laughing so hard at these numbers that I sissed myself. First of all, PCP has been consistently blowing away the ANAL-ysts numbers by an average of 15% over the recent quarters. Remember the metals? It’s all in the metals. The price of ore has doubled in the past 5 years. These raw materials cost pass throughs alone will grow absolute earnings at even fixed percentage margins. $$$MR. MARKET$$$ sees a current year EPS of $7.51 per share. At these earnings, a PE of 27 will carry the stock price to $202.77, which is way past my price target.
What does the boss, Mark Donegan, think of all this?:
“We have positioned the Company extremely well to take full advantage of the upward trends in our major markets,” said Mark Donegan, chairman and chief executive officer of Precision Castparts Corp. “We are seeing extremely strong demand in the commercial aerospace market, with sustained growth in IGT and continued upside opportunities in non-aerospace markets served by extruded pipe and Special Metals’ nickel-based alloys. Over the past 12 months, we have added the necessary critical capacity to handle higher volumes, and we will be alert to any new market developments that might require further capital investments.
“In addition to our constant drive to capitalize on all areas of opportunity, the recent acquisition of Caledonian Alloys will enable us to capture more fully the value stream of metals crucial to our manufacturing operations,” Donegan said. “Caledonian will essentially create a closed-loop system for the retention and reuse of internally-generated revert and will enable us to gain access to additional sources of critical metals outside PCC.
“We will continue to focus on our businesses with unswerving, unrelenting attention to value creation and profitable growth,” Donegan said. “Acquisitions, supported by a strong balance sheet, will also be a key strategic driver for the future.”
This guy isn’t smoking PCP, he’s living it. With his stock options, he can probably afford a year long subscription to www.mrmarketishuge.com
Tell me what you think of this write up. I am HUGE!!
$$$MR. MARKET$$$
)
Comment