Precision Castparts

PCP : NYSE : US$268.10
BUY 
Target: US$300.00

COMPANY DESCRIPTION:
Precision Castparts is a leading supplier of investment
castings, forgings and high performance alloys, and
fasteners, metal components, and assemblies for
aerospace, defense, power generation, and industrial
applications.
All amounts in US$ unless otherwise noted.

Transportation and Industrials — Airlines and Aerospace
WELL POSITIONED FOR TITANIUM
REBOUND; MAINTAIN BUY, RAISING
PRICE TARGET TO $300
Investment recommendation
We believe PCP stock will be driven higher by better-than-expected
execution, reflected in industry-leading margins and cash flow, and
additional acquisitions. We believe the expected fastener acceleration in
late 2014, coupled with an improvement in titanium pricing/demand,
will contribute to synergy upside and better-than-expected execution.
We are raising our price target to $300 and maintaining our BUY rating.

Investment highlights
 Our checks indicate that the 787 fastener acceleration is on track for
H2/C14, but we are not seeing concrete evidence yet. However, we
have increased confidence in a firming of titanium demand in
H2/C14, although pricing is likely to remain pressured in near term.
 We see substantial upside to current Timet synergy estimates, based
on cost reductions and improving demand. However, it is unlikely
the company will update its 2016 $16.00 peak EPS guidance. Our
new 2014 and 2015 estimates are $12.14 and $14.17, respectively.
Valuation
Our $300 price target is based on the average of a 21.0x EPS multiple
and a 14.2x EBITDA multiple, applied to our 2015 estimates. We believe
a multiple at the upper end of the historic range is appropriate
considering the improving fundamentals, execution upside and
acquisitions.

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