Precision Castparts (PCP, Financial) was founded in Portland, Oregon circa 1949. The company manufactures structural investment castings, forged components and airfoil castings for aircraft jet engines and power turbines.
Despite having a website that looks straight out of 1999, doing the brand zero justice, the underlying company is rock solid. It has large customers like General Electric (GE, Financial), Rolls-Royce (RR., Financial), Airbus (AIR, Financial) and Boeing (BA, Financial) that have all bought from the company for decades.
Interestingly enough, Lou Simpson (Trades, Portfolio) (former Berkshire [BRK.B][BRK.B] CEO at Geico) has 9.75% of his portfolio in this stock. I’d imagine that the same thing would happen if he was still running the portfolio at Geico.
This is the kind of company that offers a fairly wide moat and consistent growth potential in sales, profit and book value. If you don’t already, that’s exactly what you should be looking for in every investment. In the last decade the PCP grew EPS at 250% from $2.63 to $10.73 and Book Value from 15.97 to 78.86.
More highlights…
Gross Margins: 32%
ROE Average: 19%
CapEx to Net: 22%
I expect this type of growth to continue, especially considering the continued necessity for aircrafts and power turbines coupled with the rising costs of commodities paired to the making of these products, which include nickel-based superalloy, titanium, stainless steel, aluminum, among other metal components. Will the demand for air travel or energy diminish? Not with our current technology.
And, since the processes and machinery necessary to make the company’s products is complex, being able to compete with PCP is next to impossible. Add in the difficulty to get FAA certification for these components and it’s clear why Warren Buffett (Trades, Portfolio) has also bought over 4.2 million shares of the stock –Â worth around $850 million but off 10% from a recent addition.
This is your opportunity. Stock trades at less than 20 times earnings and if you can mentally grasp paying that multiple, PCP could very well double in the next five years.
PCP boasts a current EPS at $10.73, a stable growth rate around 13%. Thus, if the company can overcome the slower oil and gas segment of their business, which represents north of 7% of their total sales, while capitalizing on the increased monthly production rates across the aircraft industry, the stock decrease YTD should be short lived.
PCP currently trades around $209 a share and owning the stock is not for everyone. However, it does trade with enough volume (1.2 million shares daily) to allow even the largest money managers a chance to get in.
GuruFocus has a 4 Star Rating and puts the DCF value at $260. At this point, for long term investors, it’s prudent to follow gurus like Warren Buffett (Trades, Portfolio), Lou Simpson (Trades, Portfolio), George Soros (Trades, Portfolio), and Joel Greenblatt (Trades, Portfolio) into the stock, especially since they all paid far more than you will right now.
See Guru trades here: http://www.gurufocus.com/gurutrades/PCP
See PCP’s financials: http://www.gurufocus.com/financials/PCP
