Due to the pandemic-led supply chain disruptions and steep production cuts, the aerospace industry has been greatly impacted. The commercial segment suffered significantly due to global travel restrictions and the closure of borders. However, with the rapid evolution and commercialization of new technologies, the industry’s prospects look bright. Earnings by companies in the U.S. aerospace & defense industry have grown 8.8% per year over the last three years, and analysts expect annual earnings growth of 14% over the next five years. Also, escalating geopolitical tensions concerning Russia and China bode well for the aerospace and defense industry.
The Boeing Company (BA) in Chicago is one of the most prominent names in the aerospace industry. However, the company is struggling with low delivery capacity due to manufacturing flaws and required inspections and repairs. The company delivered 32 aircraft in January, its lowest number in three months as its side-lined 787 Dreamliner program continues to weigh on its ability to capitalize on a recovery in air travel. BA’s total revenues decreased 3.3% year-over-year to $14.79 billion in its fiscal fourth quarter, ended December 31. Also, the company incurred $4.50 billion in charges in the fourth quarter, including penalties to customers for pushing back deliveries. The stock has slumped 11.4% in price over the past six months and 1.7% over the past month to close the last trading session at $212.30.
Given this backdrop, we think aerospace stocks Textron Inc. (TXT), Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (PAC), and SIFCO Industries, Inc. (SIF) could be better bets than BA.
Textron Inc. (TXT)
TXT operates in the aircraft, defense, industrial, and finance businesses worldwide. The Hamilton, Bermuda-based company operates through five segments: Textron Aviation, Bell, Textron Systems, Industrial, and Finance. The Textron Aviation segment manufactures, sells, and services business jets, turboprop and piston engine aircraft, military trainer and defense aircraft, and commercial parts and offers maintenance, inspection, and repair services.
On February 10, TXT announced the return of its Cessna Turbo Skylane T182T to its legendary piston product lineup, updated with the latest avionics suite and interiors. Textron Aviation is taking orders for the Turbo Skylane, with its first deliveries in early 2023. “The Turbo Skylane represents our commitment to offering new and innovative solutions to our piston owners and operators, and we’re pleased to bring expanded capabilities to this segment of the market. And with all the latest attributes, the Turbo Skylane truly is better than ever,” said Ron Draper, president & CEO, Textron Aviation.
Also this month, TXT announced the rollout of the first production unit of the twin-engine, large-utility turboprop, the Cessna SkyCourier, at the company’s manufacturing facility in Wichita. It incorporates the latest techniques into the aircraft’s production. Following its anticipated certification in the first half of 2022, this first production unit will be delivered to the launch customer, FedEx Express, which has agreed to purchase up to 100 aircraft, with an initial fleet order of 50 cargo aircraft and options for 50 more. This should add significantly to TXT’s revenues.
TXT’s total revenues increased 6.3% year-over-year to $12.38 billion in its fiscal year ended January 1. Its adjusted income from continuing operations grew 57.5% from its year-ago value to $748 million, while its net income improved 141.4% year-over-year to $746 million. Its adjusted EPS increased 59.4% from the prior-year quarter to $3.30.
The Street expects the company’s revenue to increase 3.8% year-over-year to $2.99 billion in its fiscal first quarter, ending March 2022. The $0.75 consensus EPS estimate indicates a rise of 7.2% year-over-year in the same period. Also, TXT beat the Street’s EPS estimates in three of the trailing four quarters.
The stock has gained 37.7% in price over the past year and 3.7% over the past five days to close its last trading session at $69.71.
TXT’s POWR Ratings reflect this promising outlook. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. TXT is rated a B in Value and Quality. Within the Air/Defense Services industry, it is ranked #18 of 75 stocks.
In addition to the POWR Ratings grades highlighted, one can see the TXT’s Growth, Momentum, Stability, and Sentiment ratings here.
Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (PAC)
Headquartered in Guadalajara, Mexico, PAC, and its subsidiaries develop, manage, and operate airports primarily in Mexico's Pacific region. It has 12 airports in Guadalajara, Puerto Vallarta, Tijuana, San Jose del Cabo, Guanajuato (BajÃo), Hermosillo, Mexicali, Los Mochis, La Paz, Manzanillo, Morelia, and Aguascalientes, as well as two international airports in Jamaica.
In January 2022, the total number of terminal passengers at PAC’s 12 Mexican airports increased by 2.3%, versus the pre-pandemic period of 2019.
PAC’s total revenues increased 72.5% year-over-year to ₱5.29 billion ($257.34 million) in its fiscal third quarter ended September 30. Its income from operations grew 340.2% from the year-ago value to ₱2.58 billion ($125.46 million), while its net income improved 405% year-over-year to ₱1.78 billion ($86.53 million). And its comprehensive income per ADS increased 657.1% from its year-ago value to $1.90.
The $974.97 million consensus revenue estimate for its fiscal year ended Dec. 31, 2021, indicates an increase of 72% year-over-year. The company’s EPS is expected to come in at $5.39, indicating a 175.4% rise year-over-year.
PAC’s shares have gained 43.5% in price over the past year and 33.8% over the past six months to close the last trading session at $146.21.
PAC has an overall B rating, which translates to Buy in our proprietary rating system. PAC is rated a B in Growth, Momentum, Sentiment, and Quality. In the Air/Defense Services industry, it is ranked #14. To get additional PAC ratings for Value and Stability, click here.
SIFCO Industries, Inc. (SIF)
SIF produces and sells forgings and machined components primarily for the aerospace and energy markets in North America and Europe. The Cleveland, Ohio-based company’s processes and services include forging, heat-treating, and machining.
SIF’s net sales decreased 23.3% year-over-year to $19.25 million in its fiscal first quarter, ended December 31, 2021. Its gross profit declined 99.8% from the year-ago value to $9,000.
The stock has declined marginally over the past five days to close its last trading session at $6.21.
SIF has an overall B rating, which translates to Buy in our proprietary rating system. SIF is rated a B in Growth, Value, and Sentiment. It is ranked #16 in the Air/Defense Services industry. Click here to see the SIF’s Momentum, Stability, and Quality ratings.
TXT shares were trading at $68.62 per share on Monday afternoon, down $1.09 (-1.56%). Year-to-date, TXT has declined -11.11%, versus a -7.74% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.
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