Wachovia Downgrades Precision Castparts (PCP) to Market Perform
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Wachovia downgrades Precision Castparts (NYSE: PCP) from Outperform to Market Perform. Lowers valuation range to $62-$64 from $72-$76.
Wachovia analyst says, "While we expect PCP's performance to exceed many suppliers in the coming downturn, we do not expect their results to avoid cycle. About 30% of PCP's sales are to the commercial aerospace original equipment (OE) market, where we forecast an 11% decline in total production units at Boeing (NYSE: BA) (and at least that much at Airbus) by 2011. In addition, we see weaker airline traffic trends that should pressure commercial aerospace aftermarket (10% of sales). Other end markets are not likely to be able to offset given flatter military budgets (12% of sales) and general softness in IGT (10%), oil/gas (8%), general industrial (20%) and automotive (5%) end markets. As a result, y/y sales comps could remain under pressure for the next 2-3 quarters as metal prices remain generally low...PCP has an impressive track record of 35-40% incremental margins during the aerospace and IGT market up-cycles. However, we are likely to see decremental margins of that magnitude as core sales decline even as the company continues to take costs out. In all, we reducing our FY2010 EPS estimate to $7.75 from $8.00 and our FY2011 EPS estimate to $7.50 from $8.35."
To see more analyst ratings on PCP Click Here.
Precision Castparts Corp. is a manufacturer of complex metal components and products, provides investment castings, forgings and fasteners/fastener systems for critical aerospace and industrial gas turbine (IGT) applications.
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