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Aerospace and Defense Industry Companies Meeting Berkshire Hathaway Acquisition Conditions: General Dynamics, Precision Castparts, Raytheon Company, and Rockwell Collins

March 26, 2009 | About:
guruek

Introduction

On March 19, Bloomberg reported that Warren Buffett, is seeking to spend $5 billion to $20 billion on an acquisition. He prefers “simple” businesses with pretax profit exceeding $75 million, “consistent earnings power,” “good” returns on equity and little or no debt. Bloomberg went on and stated that there are 50 U.S. companies with that much market value and profit, a return on equity exceeding 10 percent and a debt-to- equity ratio less than 50 percent, according to Bloomberg’s own data.

How will Warren Buffett pay for the acquisition? If anything, we believe Warren Buffett will pay out of his existing piles of cash and other liquid investments. Warren Buffett has a little less than $30 billion cash in his hand. Given the troubles the rating agencies are giving him these days, it is hard to see him raise debt to buy into anyone of the businesses. Stock purchase is possible but we know very well how stingy the Investment Guru is in using his stocks. Berkshire Hathaway is down more than 40% from its peak, and substantially lower than its intrinsic value, we do not believe he will dilute Berkshire shares.

That leaves the probability for Warren Buffett to buy all 50 companies very slim, as a matter of fact, we will be lucky if he buys even one company off the list. Even if Warren Buffett buys any of the companies on the list, he will not pay much of a premium on the companies. The world’s second richest person did not get rich by overpaying for his investment, so it is fool’s game trying to guess which company Warren Buffett may want to buy and buy into it in hope Warren Buffett will pay more for your shares. Rather, the wise thing to do is to analyze each company on its own merit and decide its investment merit.

GuruFocus dug into the list of companies and present information on company’s business, ownership of the Investment Gurus, and trade activity of insiders. The companies are grouped according to industries they operate in.

Aerospace and Defense Industry Companies.

This part we treat the first group, Aerospace and Defense Industry companies. There are four companies in this group: General Dynamics (GD), Precision Castparts Corp.(PCP), Raytheon Company (RTN), and Rockwell Collins Inc.(COL).

Symbol

Company

Market Value ($mil)

P/E

P/S

P/B

Yield (%)

ROA (%)

ROE (%)

Operating Margin (%)

Debt to Equity (%)

GD

General Dynamics Corp.

15,563

6.50

0.50

1.50

3.50

9.33

21.48

8.46

0.31

PCP

Precision Castparts Corp.

8,593

8.10

1.30

1.80

0.20

16.63

24.03

14.93

0.08

RTN

Raytheon Company

14,896

9.20

0.60

1.70

3

7.33

14.57

7.42

0.25

COL

Rockwell Collins Inc.

5,327

8.10

1.10

3.60

2.90

16.47

45.27

14.32

0.16



1. General Dynamics (GD)

General Dynamics Corp.'s organizes itself and reports on four areas: shipbuilding and marine systems, business aviation, information systems, and land and amphibious combat systems. The primary customers for the company's businesses are the United States military, the armed forces of allied nations, other government organizations, and a diverse base of corporate and industrial buyers.

General Dynamics Corp. has a market cap of $15.56 billion; its shares were traded at around $40.31 with a P/E ratio of 6.5 and P/S ratio of 0.5. The dividend yield of General Dynamics Corp. stocks is 3.5%. General Dynamics Corp. had an annual average earning growth of 13.9% over the past 10 years. GuruFocus rated General Dynamics Corp. the business predictability rank of 5-star.

General Dynamics Corp. is owned by 5 Gurus. One Guru Initiated Positions in GD: Bruce Berkowitz bought 2,278,100 shares in the quarter that ended on 12/31/2008, which is 1.84% of the $7.13 billion portfolio of Fairholme Capital Managment.

4 Gurus Kept Positions in GD Unchanged or Slightly Adjusted: Jean-Marie Eveillard owns 1,923,799 shares as of 12/31/2008, which accounts for 1.47% of the $7.54 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC. Kenneth Fisher owns 11,978 shares as of 12/31/2008, which accounts for less than 0.01% of the $23.44 billion portfolio of Fisher Asset Management, LLC. David Winters owns 618,323 shares as of 12/31/2008, which accounts for 7.4% of the $481 million portfolio of Wintergreen Advisors. Tom Gayner owns 393,813 shares as of 12/31/2008, which accounts for 2.01% of the $1.13 billion portfolio of Markel Gayner Asset Management Corp.

Recent Trades of General Dynamics Corp. by CEO: Sell: Chairman and CEO, Director Nicholas D Chabraja sold 221,232 shares of GD stock on 02/10/2009 at the average price of $56.71; the price of the stock has decreased by 28.92% since.

Recent Trades of General Dynamics Corp. by Directors and Officers: Buy: Director George A Joulwan bought 1,000 shares of GD stock on 03/13/2009 at the average price of $37.61; the price of the stock has increased by 7.18% since.

2. Precision Castparts Corp

Precision Castparts Corp. is a worldwide manufacturer of complex metal components and products. The company is a market leader in manufacturing large complex structural investment castings and is a leading manufacturer of airfoil castings used in jet aircraft engines. In addition the company has expanded into the industrial gas turbine fluid management industrial, metalworking tools and machines, and other metal products markets.

Precision Castparts Corp. has a market cap of $8.59 billion; its shares were traded at around $61.41 with a P/E ratio of 8.1 and P/S ratio of 1.3. The dividend yield of Precision Castparts Corp. stocks is 0.2%. Precision Castparts Corp. had an annual average earning growth of 16.3% over the past 10 years. GuruFocus rated Precision Castparts Corp. the business predictability rank of 3-star.

Precision Castparts Corp. is owned by 3 Gurus. 1 Guru Initiated Positions in PCP: Glenn Greenberg bought 1,985,050 shares in the quarter that ended on 12/31/2008, which is 4.68% of the $2.53 billion portfolio of Chieftain Capital Management Inc.

2 Gurus Increased Positions in PCP: Steve Mandel owns 3,639,765 shares as of 12/31/2008, an increase of 45.05% from the previous quarter. This position accounts for 3.53% of the $6.13 billion portfolio of Lone Pine Capital. Jean-Marie Eveillard owns 315,200 shares as of 12/31/2008, an increase of 15.33% from the previous quarter. This position accounts for 0.25% of the $7.54 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC.

1 Guru Kept Positions in PCP Unchanged or Slightly Adjusted: Jean-Marie Eveillard owns 315,200 shares as of 12/31/2008, which accounts for 0.25% of the $7.54 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC.

1 Guru Sold Out PCP: Joel Greenblatt sold out his holdings in the quarter that ended on 12/31/2008.

Recent Trades of Precision Castparts Corp. by Directors and Officers: None

3. Raytheon Company

Raytheon Company is a global technology company. The company provides products and services in the areas of defense and commercial electronics engineering and construction and business and special mission aircraft. Raytheon has operations throughout the United States and serves customers in numerous countries around the world.

Raytheon Company has a market cap of $14.9 billion; its shares were traded at around $37.23 with a P/E ratio of 9.2 and P/S ratio of 0.6. The dividend yield of Raytheon Company stocks is 3%. Raytheon Company had an annual average earning growth of 14.7% over the past 5 years.

Raytheon Company is owned by 1 Gurus: NWQ Managers owns 9,105,495 shares as of 12/31/2008, which accounts for 3.06% of the $15.24 billion portfolio of NWQ Investment Management Co.

Guru Sold Out RTN: Ken Heebner sold out his holdings in the quarter that ended on 12/31/2008.

Recent Trades of Raytheon Company by Directors and Officers: None

4. Rockwell Collins Inc.

Rockwell Collins Inc. is a world leader in providing aviation electronics and airborne and mobile communications products and systems for commercial and military applications.

Rockwell Collins Inc. has a market cap of $5.33 billion; its shares were traded at around $33.69 with a P/E ratio of 8.1 and P/S ratio of 1.1. The dividend yield of Rockwell Collins Inc. stocks is 2.9%. Rockwell Collins Inc. had an annual average earning growth of 27.9% over the past 5 years.

Gurus' Positions with COL

Rockwell Collins Inc. is owned by 4 Gurus. 2 Gurus Initiated Positions in COL: Glenn Greenberg bought 1,548,200 shares in the quarter that ended on 12/31/2008, which is 2.4% of the $2.53 billion portfolio of Chieftain Capital Management Inc. Sarah Ketterer bought 14,088 shares in the quarter that ended on 12/31/2008, which is 0.59% of the $93 million portfolio of CAUSEWAY CAPITAL MANAGEMENT LLC.

2 Gurus Increased Positions in COL: Jean-Marie Eveillard owns 161,140 shares as of 12/31/2008, an increase of 51.59% from the previous quarter. This position accounts for 0.08% of the $7.54 billion portfolio of Arnhold & S. Bleichroeder Advisers, LLC. Kenneth Fisher owns 5,356 shares as of 12/31/2008, an increase of 14.94% from the previous quarter. This position accounts for less than 0.01% of the $23.44 billion portfolio of Fisher Asset Management, LLC.

1 Guru Kept Positions in COL Unchanged or Slightly Adjusted: Kenneth Fisher owns 5,356 shares as of 12/31/2008, which accounts for less than 0.01% of the $23.44 billion portfolio of Fisher Asset Management, LLC.

Recent Trades of Rockwell Collins Inc. by Directors and Officers: Sell: Sr VP, Engineering and Tech Nan Mattai sold 1,547 shares of COL stock on 03/11/2009 at the average price of $30.5; the price of the stock has increased by 10.46% since.


Rating: 2.4/5 (9 votes)

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