On Jan 21, we maintained our Neutral recommendation on
Rockwell Collins Inc.
(
COL
) following stable results for the first quarter of fiscal year
2013 ending December 31, 2012.
Why Reiterated?
Rockwell Collins' first quarter fiscal year 2013 ending December
31, 2012, adjusted earnings of 94 cents per share outpaced the
Zacks Consensus Estimate of 90 cents. Results also came in higher
than the year-ago quarterly earning per share of 86 cents. Total
sales fell 3% year over year to $1.06 billion, beating the Zacks
Consensus Estimate of $1.04 billion. In the reported quarter,
Government Systems sales slipped, partially offset by higher
Commercial Systems sales.
During the quarter, sales related to aircraft original equipment
manufacturers were up 6% year over year to $282 million driven by
increased sales of Airbus and
The Boeing Company
(
BA
), resulting from higher production rates of the 787 and A330
aircrafts.
Rockwell Collins is the foremost global supplier of
communications and avionics equipment for both commercial and
military customers. Its balanced exposure to both types of
customers allows the company to use government funding to develop
products for the dual-end market. The dual-end market leads to
higher volume sales, which create economies of scale in
cost-sensitive government contracts. In the near term, recovery
in the business and regional jet market will boost commercial
sales.
On the flip side, however, the U.S. defense spending is
negatively impacted by the Budget Control Act of 2011. The first
part dictates a $487.0 billion reduction to previously planned
defense spending over the next decade. The second part is a
sequester mechanism that would impose an additional $500.0
billion of cuts on defense spending, if the Congress is not able
to reduce the U.S. deficit by $1.2 trillion.
In order to stem the rot in the massive U.S. debt, President
Obama and Congress are struggling to cut more than a trillion
dollars in government spending. However, the Congress has not yet
passed the 2013 defense department budget proposed last year by
the Pentagon. Instead it has approved a level of spending
comparable with fiscal 2012.
The pessimistic mood is also shared by the Rockwell Collins
management. It is expecting around 10% fall in the top line of
its Government Systems business in the ongoing fiscal. Management
expects the downslide would only be partially offset by the
better performing Commercial Systems business. The upside would
stem from a steady recovery in the business and regional jet
markets.
Other Stocks to Consider
Other stocks to consider in the aerospace industry are
Alliant Techsystems Inc.
(
ATK
) and
Triumph Group, Inc.
(
TGI
), which hold a Zacks Rank #1 (Strong Buy). Rockwell Collins on
the other hand retains a Zacks Rank #3 (Hold).
ALLIANT TECHSYS (ATK): Free Stock Analysis
Report
BOEING CO (BA): Free Stock Analysis Report
ROCKWELL COLLIN (COL): Free Stock Analysis
Report
TRIUMPH GRP INC (TGI): Free Stock Analysis
Report
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