FBR Capital: Opportunities Within Aero and Defense Heading Into Earnings
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Up: 13 | Down: 11 | New: 14
Rating Summary:
2 Buy, 13 Hold, 1 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 13 | Down: 11 | New: 14
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FBR Capital: Opportunities within Aero and Defense Heading into Earnings
FBR analyst says, "As we head into the second-quarter earnings season, we think that sentiment in defense remains weak while, despite some near-term headwinds, the appetite for commercial aerospace stocks still remains strong. Industry fundamentals within commercial aerospace, including airline passenger traffic and fleet capacity, continue to track well on a global basis despite oil-driven cost pressures at the airlines and the recent trend of longer pricing power at the airlines. Within commercial aerospace over time, we still think that there will be a shift in risk appetite with investors migrating toward more OEM exposure under the belief that higher (but not overwhelmingly high) oil will compel the airlines to continue to buy new aircraft and potentially slow the upgrades of some of their older, less fuel efficient aircraft in the fleet. Given the recent strength, we think that certain commercial aerospace names will need to either beat expectations or solidly raise guidance in order to validate the current market sentiment."
"Expectations for 2Q11. Heading into second-quarter results, we think there are names that are currently trading with the expectation of beating estimates while others are trading with expectations of missing estimates. Our analysis illustrates that, based on current earnings expectations, there are many names in our space (Goodrich (NYSE: GR), BE Aerospace (Nasdaq: BEAV), HEICO (NYSE: HEI), L-3 (NYSE: LLL), and Northrop GrummanNOC) that are pricing in a meaningful beat for the second quarter. We think that the commercial aerospace names (GR, BEAV, and RTI Int'l (NYSE: RTI)) have the best chance to beat estimates and that valuation could prove to be too low as we get further into the year. In contrast, there are a few names in our space, such as Spirit Aero (NYSE: SPR), Lockheed Martin (NYSE: LMT), Orbital Sciences (NYSE: ORB), and Raytheon (NYSE: RTN), that, based on current prices and expectations, are pricing in an earnings miss. Of the four, SPR has us the most concerned because of rising costs on the G250. However, we also think you could see a solid relief rally after the company reports. We think LMT, RTN, and ORB will meet or beat expectations with ORB best positioned for the long term."
FBR analyst says, "As we head into the second-quarter earnings season, we think that sentiment in defense remains weak while, despite some near-term headwinds, the appetite for commercial aerospace stocks still remains strong. Industry fundamentals within commercial aerospace, including airline passenger traffic and fleet capacity, continue to track well on a global basis despite oil-driven cost pressures at the airlines and the recent trend of longer pricing power at the airlines. Within commercial aerospace over time, we still think that there will be a shift in risk appetite with investors migrating toward more OEM exposure under the belief that higher (but not overwhelmingly high) oil will compel the airlines to continue to buy new aircraft and potentially slow the upgrades of some of their older, less fuel efficient aircraft in the fleet. Given the recent strength, we think that certain commercial aerospace names will need to either beat expectations or solidly raise guidance in order to validate the current market sentiment."
"Expectations for 2Q11. Heading into second-quarter results, we think there are names that are currently trading with the expectation of beating estimates while others are trading with expectations of missing estimates. Our analysis illustrates that, based on current earnings expectations, there are many names in our space (Goodrich (NYSE: GR), BE Aerospace (Nasdaq: BEAV), HEICO (NYSE: HEI), L-3 (NYSE: LLL), and Northrop GrummanNOC) that are pricing in a meaningful beat for the second quarter. We think that the commercial aerospace names (GR, BEAV, and RTI Int'l (NYSE: RTI)) have the best chance to beat estimates and that valuation could prove to be too low as we get further into the year. In contrast, there are a few names in our space, such as Spirit Aero (NYSE: SPR), Lockheed Martin (NYSE: LMT), Orbital Sciences (NYSE: ORB), and Raytheon (NYSE: RTN), that, based on current prices and expectations, are pricing in an earnings miss. Of the four, SPR has us the most concerned because of rising costs on the G250. However, we also think you could see a solid relief rally after the company reports. We think LMT, RTN, and ORB will meet or beat expectations with ORB best positioned for the long term."
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