Monday, December 7, 2009

Precision Castparts Tops $110 Price Target

During the day Friday, December 4th, and early in the session today, December 7th, Precision Castparts has been trading at or above the twelve month price target of $110 that I had pitched the stock for during the November 6th conference call.

Fortunately, I feel that there is even more upside to Precision Castparts going forward. Due to the uncertainty of both the aerospace market and the Boeing 787 Dreamliner project, I feel that the projections I made in my model were relatively conservative, resulting in a price target in the lower range. Furthermore, good news over the past several weeks concerning Boeing’s 787 progress and strong backing from Boeing management to meet its goal of getting the first 787 off the ground by 2010 can only bolster the stock price of Precision Castparts.

Additonal good news regarding Precision Castparts was released last week at Credit Suisse’s 2009 Aerospace & Defense Conference as well. Precision Castparts announced a slowing of customer inventory destocking over the course of its third quarter FY10 and even started to experience some pull-ins of new orders. Precision Castparts also anticipates the gap to narrow between aircraft production schedules and actual build rates in its fourth quarter FY10 and even more in FY11.

Precision Castparts also presented their potential synergies with recently acquired Carlton Forge Works. This acquisition filled a significant hole in Precision Castparts’ portfolio of products and services and gives it greater access to a $1 billion market in seamless rolled rings for various turbine and industrial applications. Precision Castparts targets synergies with Carlton Forge Works to be between $15 and $20 million within the next 12 to 16 months and $35 to $40 million within the next 22 to 26 months.

All in all, Precision Castparts has been one of the top performers from the November 6th conference call and with all of this good news taken into consideration, I feel that Precision Castparts will continue to perform well in the near future and it is worth holding onto our position going forward.

Once finals and semester projects start to ease, I will attempt to revise my model given all the new information and see how it affects my previous price target of $110.

If you have any comments, suggestions or concerns, please do not hesitate to contact me.

-Matthew Opanowski

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