Why KeyBanc Is Boosting Its Rockwell Collins Target To $105

In a report published Tuesday, KeyBanc Capital Markets analysts maintained an Overweight rating on

, while raising the price target from $95 to $105. The annual MRO conference, scheduled for April, should "yield positive data" related to the aero aftermarket (AM), the analysts said. AM trends should gain momentum as the year progresses. Although 4Q14 results were healthy, they fell short of the performance in previous quarters. "Year-end destocking & heavy aircraft utilization during holiday months can impact C4Q; we are not reading too much into the volatility," the analysts added. A decline in fuel prices has reduced fuel as a percentage of total OpEx by 400 bps to 26% for carriers. The lower costs have boosted profits, which can be expected to be ploughed into cabin retrofits and deferred maintenance. Referring to the MRO conference, KeyBanc Capital Markets noted, "Overall health/growth rates of global MRO market should be major focus item. We also expect focus on increased reliance of older aircraft given sharp drop in fuel prices, as equipment stays in service longer & retirements decrease, accelerating aftermarket activity." The analysts added that the three segments that would be boosted by AM spending increases in CY15-16 are engines, interiors and connectivity. Regarding connectivity, the report stated, "Major trends of in-flight entertainment & Wi-Fi should continue to see major adoption. However, rapidly advancing on connectivity front is ability to offer predictive maintenance services from e-enabled aircraft. Additionally, recent tragedies have focused spotlight on improving aircraft tracking, which has potential to create new revenue streams & retrofit opportunities as industry finally moves away from 1970s technology."