Boeing Remains Jefferies 'Franchise Pick,' But Firm Tweaks Industry Forecasts

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In a report published Tuesday, Jefferies analyst Howard Rubel discussed the aerospace sector and adjusted his delivery forecast for large civil jet transports while cutting business jet forecasts.

According to Rubel, large civil jet deliveries are expected to expand at a 4.6 percent rate through 2018, but business jet deliveries are expected to only rise by "just a point or two" over the next few years, indicating a rate that is about two points slower than previously projected.

Rubel also noted that to a "meaningful degree," the aerospace sector can be projected 18 months into the future. As such, the following commentaries were made covering nine companies.

Company Specific Commentary

Boeing Co BA's military revenue is expected to be "relatively flat, but profits to be higher" due to the absence of a KC-46 charge. The company also reached an agreement with Qatar for four of the final C-17's, the timing of which will "make a mark on cash flows."

Related Link: The Mix Matters For Boeing's 787, Deutsche Bank Says

Rubel lowered B/E Aerospace Inc BEAV's 2016 earnings estimate to $3.35 from a previous $3.45 (while also lowering his 2017 earnings per share estimate to $3.90 from $4.00) to reflect a lower commercial delivery forecast and a slower increase in production for the A350 than previously expected.

Rubel lowered Hexcel Corporation HXL's 2016 earnings per share estimate to $2.65 from a previous $2.70 to reflect a slower ramp for A350 deliveries and a slowdown in A380 product. The analyst also noted the company could face headwind in 2016 from lower production of helicopters for the oil and gas market.

KLX Inc KLXI is scheduled to report its third quarter results in late August. The analyst is estimating the company will earn $0.31 per share in the quarter (versus a consensus estimate of $0.37). According to Rubel, recent share price under-performance is attributed to the Energy Services segment rather than a fundamental change in the Aerospace Solutions Group.

Rubel revised his 2016 earnings per share estimates for Rockwell Collins, Inc. COL to $5.65 from $5.75 (2017 estimates were also lowered to $6.25 from $6.39) as the analyst is now forecasting Commercial Systems revenue to rise 4 percent year-over-year, marking a "more tempered" growth from a prior expectation of 7 percent.

Rubel is estimating Textron Inc. TXT will earn $0.56 in its second quarter, marking an increase from the $0.51 per share it earned a year ago. The analyst noted that the company is expected to report an in-line quarter given a "limited" upside surprise from Textron Aviation and a flat do down profitability at Bell. The analyst's full year 2015 and 2016 earnings per share estimates of $2.45 and $2.85 remain unchanged.

Rubel is estimating Triumph Group Inc TGI will earn $1.23 in its first quarter results, falling short of the $1.36 per share consensus estimate and $1.42 per share it earned in the same quarter a year ago. The analyst's below consensus estimate assumes a 4 percent contraction in the Commercial Aerospace portfolio.

Rubel believes that Raytheon Company RTN will revise the way it reports its results due to the Websense deal. The revised results may not include pension adjusted results while GAAP earnings will include deal costs and amortization. Finally, adjusted EPS will likely exclude deal costs, deferred revenues and amortization.

Finally, Rubel trimmed his 2016 and 2017 United Technologies Corporation UTX's 2016 earnings per share estimates to $6.85 and $7.50 from a previous $7.00 and $7.80. However, these estimates do not factor in the "likely" sale of Sikorsky, which could be in the $9 billion to $10 billion range. In addition, the company is likely to undertake a review of its operations and find "significant" restructuring projects to drive earnings per share growth over the long-term.

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Posted In: Analyst ColorTop StoriesAnalyst RatingsaerospaceBusiness JetsCivil JetsHoward RubelJefferies
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