According to the undervalued predictable screener, three undervalued-predictable aerospace and defense companies are TransDigm Group Inc. (TDG, Financial), Heico Inc. (HEI.A, Financial)(HEI, Financial) and Hexcel Corp. (HXL, Financial).
Dow soars on progress on smoothing U.S.-China trade relations
The Dow Jones Industrial Average closed around 24,527.27, up 157.03 points or 0.64% higher than its previous close of 24,370.24. Major aerospace and defense companies like Boeing Co. (BA, Financial) and Bill Ackman (Trades, Portfolio) target United Technologies Corp. (UTX, Financial) increased more than 1% on news that China is “working to increase access to foreign companies,” according to a Wall Street Journal report.
Gurus riding Boeing’s momentum include the T Rowe Price Equity Income Fund (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).
TransDigm Group
Cleveland-based TransDigm Group designs, produces and supplies engineered aircraft components for use in commercial and military aircraft. Shares closed around $353.36, up approximately 2.26% from the previous close of $345.73. While the company trades above its Peter Lynch earnings line, TransDigm trades slightly below its median price-earnings valuation according to the company’s extended Peter Lynch chart. Additionally, TransDigm has a 16% margin of safety based on its DCF earnings calculation.
TransDigm CEO Kevin Stein said on Nov. 6 the company’s strong commercial aftermarket and defense revenues contributed to a full-year EBITDA margin of 49%. GuruFocus ranks the company’s profitability 9 out of 10 on several positive indicators, which include expanding profit margins, consistent revenue growth and a strong Piotroski F-score of 7. The company’s business predictability ranks a perfect five stars on strong and consistent revenue and earnings growth over the past 10 years.
Despite strong profitability, TransDigm’s financial strength ranks a poor 4 out of 10, primarily due to weak interest coverage of 2.48 and an Altman Z-score of 1.55. The former falls below Benjamin Graham’s safe threshold of 5 while the latter suggests possible financial distress.
Gurus riding TransDigm’s profitability potential include Steve Mandel (Trades, Portfolio) and Lee Ainslie (Trades, Portfolio).
Heico
Florida-based Heico manufactures jet engines and aircraft components for the aviation and defense industries. Class A shares (HEI.A, Financial) closed around $68.35, up approximately 2.74% from the previous close of $66.52. Likewise, standard shares (HEI, Financial) closed around $83.28, up approximately 2.10% from than the previous close of $81.54.
GuruFocus ranks Heico’s profitability 9 out of 10 on several positive investing signs, which include expanding profit margins and a three-year revenue growth rate that outperforms 89% of global competitors. Additionally, Heico has a business predictability rank of 4.5 stars and a 9.75% return on assets, close to a 10-year high.
Despite increasing long-term debt, Heico’s financial strength ranks a solid 7 out of 10: interest coverage of 19.83 ranks higher than 62% of global competitors while the Altman Z-score is a robust 6.55.
Chuck Royce (Trades, Portfolio) and Mario Gabelli (Trades, Portfolio), two of three gurus speaking at next year’s value conference, both own shares of Heico.
Hexcel
Stamford, Connecticut-based Hexcel develops and manufactures carbon fibers, reinforcements, honeycomb and adhesives for use in commercial aerospace, space and defense markets. Shares closed around $59.48, up 2.30% from the previous close of $58.13. Based on its extended Peter Lynch chart, Hexcel is trading slightly below its median price-earnings valuation but higher than its Peter Lynch earnings line. Despite this, the company’s price-earnings ratio is near a two-year low of 17.66 while the company’s price-sales ratio is near a two-year low of 2.36.
GuruFocus ranks Hexcel’s profitability 8 out of 10: among the company’s six positive investing signs are expanding profit margins, consistent revenue growth and a dividend yield near a five-year high. The company’s net profit margin of 13.95% is near a 10-year high and outperforms 88% of global competitors.
Gurus riding Hexcel’s momentum include Robert Karr (Trades, Portfolio), Tom Gayner (Trades, Portfolio) and Steven Cohen (Trades, Portfolio).
Disclosure: No positions.
Read more here:
