Monday, October 21, 2013
General Electric Orders Bode Well for Commercial Aircraft and Gas Turbine Supplier Precision Castparts Corp
General Electric today posted strong earnings from its industrial segments, and record orders, foreshadowing strong growth for our newest holding Precision Castparts Corp from which 15% of revenues derive from General Electric in the form of parts for commercial aircraft (primarily jet engines), and for industrial gas turbines. General Electric's quarter included a $1.9 billion order from Algeria's Soneglaz for turbomachinery, and a $2.5 billion commitment from Lufthansa for 34 engines stemming from its order of 34 Boeing 777-900 aircraft. Overall, orders in the power segment rose 39% and orders in the aerospace segment orders rose 92% year over year (300% growth for jet engine orders). Overall this supports our thesis for Precision Castparts Corp, as orders in the power markets stemming from a shift to natural gas continue to strengthen, and commercial aircraft orders remain at all-time highs which will drive revenues and the stock price as we remain in a bullish cyclical trend over the medium-term. We maintain our Buy rating on Precision Castparts Corp with a 12 month price target of $278, a 15% premium to current levels.