Is B/E Aerospace Inc (BEAV) Set to Fly Higher?

Commercial aerospace company B/E Aerospace Inc (NASDAQ:BEAV) delivered a pretty strong set of results recently. It raised guidance and served notice that its backlog of orders plus exposure to wide bodied aircraft deliveries is creating good growth opportunities in 2013. In summary, I like the stock and the trends within aerospace that it is exposed to. However, I consider it to be fairly valued and investors may want to wait for a dip before buying in.

B/E Aerospace Inc Flying High

In order to accelerate learning and avoid going over old ground I will note that I’ve previously discussed BEAV in a blog post linked here, and I would strongly recommend that readers take a look at a recent outline of the key trends in the commercial aerospace industry. The conclusion of the latter piece is that there is evidence to believe that the airlines’ performance within the economic cycle has become relatively better. If so then the companies that supply them (including BEAV) deserve a re-rating even if they still are cyclically aligned.

Turning back to BEAV specifically, here are its business segments and how it made money in 2012.

Its commercial aircraft operations increased revenues in the quarter by 13.9% with operating earnings up 17.9%. This is impressive stuff and reflects the strength of The Boeing Company (NYSE:BA) and Airbus delivery schedules. BEAV is a preferred seating supplier to both airlines and also sells cabin interiors and a range of products including food and drink equipment.

It also has a lavatory system designed initially for the Boeing 737, which is intended for retrofit for airlines. The system creates additional seating on the plane so it has obvious ROI appeal.  I suspect take-up has been lower than expected, but management stated in the conference call that they expect to receive an order ‘in the near future.’

There are a few key trends to look out for with this segment:

• Governments are not subsidizing loss making airlines as they did before, so the weight of business has shifted somewhat towards new build rather than retro–fit. Older planes are being retired rather than kept going, but BEAV is forecasting a pick up in the aftermarket by 2014.
• 61% of BEAV’s revenues were driven by new-build.
• The trend towards wide bodied airplanes is greatly beneficial to BEAV.
• The issues with the 787 Dreamliner could be a problem, but for now BEAV have been told to deliver as usual by Boeing.
• A deal for the lavatory system would really kick-start BEAV’s activities at the airplane assembly and possibly open up new opportunities.
• Retrofit LED lighting will also provide some growth.

So there are plenty of growth drivers alongside the traditional cyclicality within this segment.