In the first quarter of 2013, David Einhorn, the founder and president of Greenlight Capital Re, Ltd. (NASDAQ:GLRE), delivered a 6.1% gain. In previous articles, I have talked about four of his new buys including two companies in the oil and gas industries and two companies in the financial industry. In addition, he also initiated long positions in two other businesses, Spirit AeroSystems Holdings, Inc. (NYSE:SPR) and IAC/InterActiveCorp (NASDAQ:IACI) . They are small positions though, as Spirit AeroSystems and IAC accounted for only 0.48% and 0.3%, respectively, of his total portfolio.
The aircraft parts maker and customer concentration
Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is considered to be the biggest non-original equipment manufacturer of aircraft parts and commercial aerostructures globally, operating in three main business segments: Fuselage Systems, Propulsion Systems and Wing Systems.
Most of its revenue, $2.59 billion, or 48% of the total 2012 revenue, was generated from the Fuselage Systems segment while the Propulsion Systems and Wing Systems segment contributed around $1.42 billion and $1.37 billion, respectively, in revenue in 2012. However, Wing Systems generated a loss of nearly $340 million in 2012, mainly due to the forward loss charge of $151 million on its Rolls-Royce program and another $8 million on its B767 program.
Spirit AeroSystems Holdings, Inc. (NYSE:SPR)’ two biggest customers are The Boeing Company (NYSE:BA) and Airbus Americas, Inc., which also have long-term supply agreements with the company. In 2012, The Boeing Company (NYSE:BA) represented around 84% of the total revenue while Airbus Americas, Inc. accounted for around 9% of its total sales in 2012.
Its net income has experienced a significant drop of 82% to $35 million in 2012, mainly due to the $146.2 million impact from severe weather event in Kansas facility in the April 2012. However, the free cash flow came out positive, at $295 million. Spirit AeroSystems Holdings, Inc. (NYSE:SPR) is trading at $21.60 per share, with the total market cap of $3.1 billion. The market values the company quite expensively at 25.70 times EV/EBITDA.
The EV/EBITDA ratio stands for Enterprise Value/Earnings Before Interest, Taxes, Depreciation and Amortization, in which Enterprise Value = Market Capitalization + Debt – Cash. While the price-to-earnings ratio only reflects the relationship between the market price and its earnings, this valuation ratio takes into account the company’s market value, debt, cash and its cash flow position. The lower the ratio, the cheaper the stock.
However, the company seems cheap with only 0.79 times PEG. PEG is the price-to-earnings-to-growth ratio, taking the annual earnings growth into account. The company is considered overvalued if the PEG is greater than 1 and undervalued if PEG is less than 1.