B/E Aerospace Inc (BEAV), Precision Castparts Corp. (PCP): Thursday’s Top Upgrades (and Downgrades)

Page 1 of 2

This series, brought to you by Yahoo! Finance, looks at which upgrades and downgrades make sense, and which ones investors should act on. Today, our headlines feature a pair of hikes to price target at aerospace parts suppliers B/E Aerospace Inc (NASDAQ:BEAV) and Precision Castparts Corp. (NYSE:PCP). But the news isn’t all good, so before we address those two, let’s start with why one analyst thinks…

B/E Aerospace Inc (NASDAQ:BEAV)

Cliffs could dive
In direct contradiction to the bullish note struck by analysts at BB&T Capital earlier this week (where analysts upgraded Cliffs Natural Resources Inc (NYSE:CLF) stock on news of its CEO’s departure) a different banker announced this morning that it’s not nearly so hot on the company’s chances. Disagreeing with BB&T’s analysis (but agreeing with my own), analysts at CIBC cut their rating on Cliffs Natural Resources Inc (NYSE:CLF) from sector perform to underperform.

Why might this be the right all, and BB&T’s endorsement of the stock the right one?

For the same reasons I outlined earlier in the week: Cliffs Natural Resources Inc (NYSE:CLF) is not a profitable company. It might turn profitable next year (or it might not). But even if it does, the 4% consensus earnings growth projections of the analysts simply aren’t strong enough to support the 10 times forward earnings valuation the share now carry. Not with Cliffs Natural Resources Inc (NYSE:CLF) burning through cash at the rate of $500 million a year. Not while it’s laden with $3.4 billion in net debt.

Based on these facts, CIBC is right to turn to be pessimistic.

Now for the good news
Turning now from iron to aluminum, titanium and carbon composites…  in contrast to CIBC’s bearish note on Cliffs Natural Resources Inc (NYSE:CLF), one analyst is taking a decidedly bullish note on the aerospace sector, and on the companies that supply parts to it in particular. In a note released to investors this morning, investment banker Sterne Agee argued that “pure-play aerospace companies should continue to benefit from production rate increases” in the current quarter.

Reviewing seven companies operating in the sector, Sterne highlighted five that it likes — and two that it likes a lot. Those two, from which the analyst says it expects to see “the most upside to our estimates,” are metal aircraft components manufacturer Precision Castparts Corp. (NYSE:PCP), and aircraft interiors specialist B/E Aerospace Inc (NASDAQ:BEAV). For each of these firms, Sterne sees “still plenty of runway left in cycle.” Let’s take them one at a time.

Precision Castparts
Sterne notes that Precision Castparts Corp. (NYSE:PCP) now has “a full quarter” revenues from its Timet acquisition now under its belt, and on its books. “Momentum is just commencing on the $30-$40 million of synergies expected over the next 12+ months,” says the analyst, as this has Sterne predicting the shares will hit $281 within 12 months.

Is such an 18.5% profit on the stock likely? I don’t think so, and I’ll tell you why.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!