The Real Reason Buffett Is Buying Precision Castparts

In a report published Monday, Deutsche Bank analyst Myles Walton maintained a Hold rating on Precision Castparts Corp PCP and a price target of $215, after reports of the company's potential acquisition by Berkshire Hathaway Inc. BRK emerged. Berkshire Hathaway, which currently holds 3 percent of the outstanding stock, or 4.2 million shares, in Precision Castparts, is said to be in discussions to acquire the latter for a price higher than $30 billion, according to a report. Analyst Myles Walton said that the investment manager had been building up its position and had raised its stake in Precision Castparts from 1.5 percent in the last couple of years to 2 percent in December 2014, to now 3 percent. "…the possibility of such a bid has been in the market, though not with high-odds (to date)," Walton added. In the report Deutsche Bank noted, "There is no obvious synergy with the rest of the Berkshire Hathaway portfolio and instead looks like a deal driven by the firm's thinking that they are getting a large manufacturing firm in the aerospace industry well off its highs (as a result of negative earnings revisions and multiple compression on an elongated aerospace cycle)." Precision Castparts' management had been finding it difficult to "master the public company expectations management process" and thus may welcome the freedom to operate within the Berkshire Hathaway portfolio, Walton mentioned. The current uptrend in the aerospace cycle of 12 years had made investors wonder how long the demand could remain robust, the report added.