The Aerospace/Defense Sector - of which Esterline Technologies (ESL) is a part - is entering the sweet spot of this cycle. Commercial deliveries of new models (i.e., the A380, 787 & A350) have yet to start in earnest, while deliveries of more mature marks continue apace. Further, maintenance, repair and overhaul (MRO) of both commercial and military equipment is at a heightened level because of increased usage, which engenders a vibrant after-market.
First quarter 2008 net earnings included a $6.9 million in tax benefits and a $1.9 million gain associated with the termination of an interest rate swap; first quarter 2007 net earnings included a $2.1 million tax benefit. ESL's management raised its full-year earnings per share guidance to a range of $3.35 to $3.50, partly to account for the one-time benefits, but also to reflect an improving outlook. Revenues in the quarter were somewhat better than anticipated due to the timing of a shipment of countermeasure flares.
As robust levels of revenues and income are envisioned for ESL over the balance of the decade, we continue to believe that it should be considered for purchase, especially now that there are indications that its margins can improve, something hoped for by many investors. The average P/E for the aerospace/defense suppliers group is 15.5. Our EPS projection for ESL for calendar year 2008 is ~$3.58; applying the average P/E of 15.5 to this estimate engenders a price of $55.50, which is higher enough from ESL's current price for us to maintain our Buy opinion.
Read the full analyst report on ESL.
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