Esterline Technologies Corporation (NYSE:ESL) is a leading world-wide supplier to the aerospace and defense industry, specializing in three core areas: Avionics & Controls, Sensors & Systems, and Advanced Materials. Recent significant insider buying has been reported at the company. Should investors follow the insiders and buy the stock?
With regards to valuation, Esterline trades at a P/E of 19.51, close to the industry average. Its price-to-earnings ratio is lower than that of competitors like AMETEK, Inc. (NYSE:AME), but higher than that of others like Lockheed Martin Corporation (NYSE:LMT). The situation is similar when taking into account future earning estimates: Esterline Technologies Corporation (NYSE:ESL)'s forward P/E is 11.59, sitting halfway between AMETEK's 17.40, and Lockheed's 10.67. However, the situation is different when one looks at the stock's PEG and P/B: Esterline beats its competitors in both ratios (the stock is trading at a P/B of 1.34 and a PEG of 1.30). All in all, Esterline is neither overvalued nor undervalued when taking into account price-to-earning ratios (both current and forward), but, relative to its peers and industry, the stock does seem to be slightly undervalued when taking into account its price-to-book and P/E-to-growth (PEG) ratios.
Wall Street analysts are slightly bullish on the stock: it currently has an average recommendation of 2.20 (overweight-hold) and an average price target of $76.89, which implies 7.7% upside potential from current prices. However, AMETEK, Inc. (NYSE:AME) seems to be the most favored by analysts, as it has an average recommendation of 1.90 (buy-overweight), and a price target that implies more than a 13% upside potential. With regards to Lockheed Martin Corporation (NYSE:LMT), even though it beat most of the industry's stocks in the P/E arena, analysts are mostly neutral on this one: the stock has a 2.80 average recommendation, and its average price target is actually lower than the current stock price.
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Despite defense spending reduction fears, Esterline Technologies Corporation (NYSE:ESL) has had a good run YTD, as the stock has gained roughly 12.5%. Its price has dropped from its 52-week high attained in mid-March (it is currently 8.36% off its high of $77.90), but it is almost 40% above its 52-week lows of $51.13. The stock is also trading close to its all-time high of $80.57 (July 2011) and far from its low of $19.76, which was reached in March 2009 amid the financial crisis.
On April 11, Director Henry Ward Winship IV bought 18,500 shares of Esterline Technologies in the open market, at an average price of $75.56. That is a purchase of almost $1.4 million. The next day, he bought 9,500 more shares, at an average price of $75.12, spending more than $700,000. So in just two days, Mr. Winship, a director with unique insight into the company's business, invested $2,111,500 of his own money to buy Esterline Technologies Corporation (NYSE:ESL) shares in the open market. This is significant insider buying, and is therefore a bullish sign for the stock.