Rockwell Collins, Inc.
) offers investors solid growth and income at a very reasonable
Based on current consensus estimates, analysts project double-digit
EPS growth over the next two years. On top of this, the company
pays a dividend that yields a solid 1.6%.
And estimates have been rising after the company delivered better
than expected fourth quarter results, sending the stock to a Zacks
#2 Rank (Buy).
Rockwell Collins provides communications and aviation electronics
solutions for both commercial (47% of sales) and military (53%)
The company is headquartered in Cedar Rapids, Iowa and has a market
cap of $8.6 billion.
Fourth Quarter Results
Rockwell Collins delivered solid fourth quarter results on January
19. Earnings per share came in at 86 cents, beating the Zacks
Consensus Estimate by a penny. This was a 5% increase over the same
quarter in 2010.
Total sales declined 1% to $1.094 billion, but this was ahead of
the Zacks Consensus Estimate of $1.086 billion. The Commercial
Systems segment saw revenue growth of 13% driven by solid growth in
sales related to both original equipment manufacturers (OEMs) and
the aftermarket. But this was offset by a 10% sales decline in
Operating income increased 2% as the operating margin expanded 60
basis points to a stellar 19.9% of sales.
Following solid Q4 results, management reiterated its EPS guidance
of $4.40 to $4.60 for 2012. Analysts revised their estimates
modestly higher, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2012 is now $4.48, within
guidance, and representing 14% growth over 2011 EPS. The 2013
consensus estimate is currently $5.03, corresponding with 12%
Cuts in defense budgets threaten growth over the next few years,
but analysts are still optimistic that market share gains, high
profit margins and continued share repurchases will drive
double-digit EPS growth over the long-term.
Returning Value to Shareholders
Rockwell Collins has a solid balance sheet which has allowed it to
buyback shares and pay a stable dividend.
In fact, during the first quarter of 2012 the company issued $250
million in debt at an interest rate of just 3.10%. This money,
along with cash of hand, was used to repurchase 7.1 million shares
of its stock at a total cost of $385 million.
The company also pays a dividend that yields a solid 1.6%. It has
paid the same 24 cent per share quarterly dividend since 2008. But
its payout ratio is a relatively low 25%, so the company has plenty
of room to increase its dividend if it chooses.
Valuation looks reasonable for COL with shares trading at just
12.4x 12-month forward earnings, a significant discount to its
10-year median of 17.0x.
Its price to cash flow ratio of 11.7 is also below its historical
multiple of 13.7.
The Bottom Line
With rising estimates, strong EPS growth projections,
shareholder-friendly management, a 1.6% yield and attractive
valuation, Rockwell Collins offers solid total return potential.
Todd Bunton is the Growth & Income Stock Strategist for
and Co-Editor of the
Reitmeister Value Investor
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