Ducommun BUY Target $ 34

DCO : NYSE : US$26.87
Target: US$34.00

Ducommun, headquartered in Carson, California, is a supplier of aerostructures and components for commercial and military aircraft and engines, as well as a supplier of electronic assemblies and systems for commercial, military, industrial, medical and natural resources markets.

Investment recommendation
We are initiating coverage of Ducommun (DCO) with a BUY rating and a $34 price target. As execution continues to improve, confidence in cash flows and debt reduction should increase, serving as positive catalysts. We believe H2/13 represents the bottom for non-A&D sales, which should provide additional upside into 2014.
Investment highlights
 While structures represent only 42% of sales, sentiment on segment margin improvement is important for DCO stock. We believe strong improvement in 2013 (100bps over 2012) and then steady improvement into 2014-2015 will be positive, demonstrating execution capabilities and success with new programs. Improved execution is also reducing the negative overhang from the 2011 LaBarge acquisition.
 DCO on track to reduce debt by ~$30M each year through 2015, which would contribute ~$0.10 to EPS. We believe the non-A&D sales will trough in H2/13, adding to the 2014 upside.
Our $34 price target is based on the average of a 15.0x EPS multiple and an 8.0x EBITDA multiple, applied to our 2014 estimates. We believe even with the strong 2013 YTD performance (up >70%), investor interest will remain positive as execution improves.

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