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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

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!