BE Aerospace Should Soar

06/11/2007 12:00 am EST


Vahan Janjigian

Editor, Bottom Line's Money Masters Stock Report

Vahan Janjigian, editor of Forbes Growth Investor, says the supplier of seats and other components for commercial aircraft and business jets should flourish as passenger traffic grows. 

BE Aerospace (NASDAQ: BEAV) makes seats and cabin interior systems for commercial and business aircraft. Its products can be installed in new planes or in existing planes that are being refurbished. In fact, about 60% of its sales come from the existing aircraft market.

The company operates five business segments. The Seating segment is the largest, accounting for 37.2% of first-quarter sales. Seats typically include a frame, cushions, armrests and a tray table. Options include adjustable lumbar-support systems, foot rests, reading lights, head and neck supports, and oxygen masks. First-class seats can lie flat and come with an ottoman, privacy panels, and wall-mounted tables. Business-class seats include power ports, telephones, adjustable headrests, and fiber-optic reading lights.

Interior Systems accounted for 21% of sales. It designs and manufactures oxygen delivery systems, coffee makers and water boilers, convection and steam ovens, refrigeration equipment, lighting systems, storage compartments, and other products for cabin interiors. This segment includes Draeger Aerospace, a maker of chemical and oxygen systems for civilian and military aircraft, which BEAV acquired in September 2006.

The Distribution segment produced 25% of sales. It offers an array of aerospace grade fasteners, fastening systems, related hardware, and inventory management services to over 200 aerospace hardware manufacturers. In September 2006, this segment acquired New York Fasteners, a distributor of fasteners and other hardware to customers in the military sector.

The Business Jet segment accounted for 11.4% of first-quarter sales. It offers design services and manufactures furnishings and interior systems for executive aircraft. The remaining 5.5% of revenues came from the Engineering Services segment.

According to Airline Monitor, a leading airline industry research provider, worldwide passenger traffic increased 5.9% in 2006. Deliveries for new large commercial aircraft and business jets jumped 24% and 19%. Demand for upgrades helped BEAV’s revenues grow 34% to $1.13 billion. Bookings jumped 40% to $1.7 billion. Backlog at the end of 2006 stood at $1.7 billion, up 60% from a year earlier.

First-quarter net sales jumped 56.9% as BEAV booked $450 million in new orders. The operating profit margin [grew by] 196 basis points [over the first quarter in 2006] to 14.54%. Net income surged 132.6% to 40 cents per share.

BEAV depends on the good health of the airline and business-jet industries, which are impacted by many factors including fuel costs and price competition. Based on its healthy backlog and strong order activity, BEAV should report excellent results for several quarters. It will benefit as carriers refurbish existing fleets and upgrade to newer wide-body planes such as the Boeing 777 and 787 and the Airbus A380. These planes accommodate many more seats than traditional aircraft, which translates into a lot more business for BEAV. (The stock closed Friday at about $38—Editor.)

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