Rockwell Collins Downgraded At Argus On Sales Concerns

Although Rockwell Collins, Inc. COL reported its FQ3 EPS ahead of expectations, management lowered the full-year guidance. Weakness in the business jet market is adversely impacting the company’s top- and bottom-lines, Argus’s John Eade said in a report. He downgraded the rating on Rockwell Collins from Buy to Hold.

Problem Near Term

While Rockwell Collins should be able to achieve mid-single-digit sales and EPS growth in the long term, the company’s near-term is a concern area. The company’s top line had been under pressure from the split between its commercial and government businesses. Rockwell Collins is now struggling to offset the slowdown in the business jet market, analyst Eade mentioned.

For FQ3, the Commercial Systems segment had recorded flat revenue at $611 million, with a 2 percent decline in OEM sales. The segment’s operating earnings were also flat at $141 million, with operating margin contracting 10bps to 23.0 percent due to a product mix shift away from the higher-margin business jet OEM sales.

Positives Exist

Eade commented that management would likely try to improve margins at the recently acquired ARINC, and a share buyback plan is boosting Rockwell Collins’ EPS. He added that the company was well managed and the rating would be changed back to Buy on “signs of stronger sales growth or improving valuations.”

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