4/7/2014 1:03:00 AM
HEADLINES
Perceived Inventory Glut Slows Boeing & Other Aerospace Stocks
Boeing stock has been stagnant and there is a trickle down effect on the fastener industry, analyst Jim Cramer finds.
Aerospace stocks are down and when there is “an uplift of any kind, sellers materialize and throw the group back down,” Cramer wrote in Real Money.
There is a perception that there is an inventory glut.
“This perception lurked in the Boeing earnings call, but I thought it was refuted. It came up in the Alcoa call, and with Aloca producing two million fasteners per plane, there’s a real interest here,” Cramer narrated. Alcoa did admit to some inventory, “but it also said this would be resolved quickly – and I think it has been.”
Cramer dismisses any inventory problem as “a short-term, anomalous blip.” The airlines are flush and with high oil prices, airlines need new, more fuel-efficient planes, he countered. “I think Boeing’s stock is resting and that the group will take off after the company reports.”
During a conference call in January Alcoa executives expressed optimism in aerospace fundamentals.
“We expect the aerospace market to remain strong but see lower US defense spare parts demand,” CFO William Oplinger stated.
CEO Klaus Kleinfeld estimates aerospace market growth of 7-8% in 2014 “driven by continued strong performance in large commercial aircraft segment.”
Kleinfeld said Boeing as well as Airbus now have a combined backlog of over 10,000 aircraft – about eight years of production. Strong demand also is coming from Southeast Asia and the Gulf, as evidenced at the Dubai Air Show in November, when Boeing received the single largest commercial order, $56 billion for 150 Boeing 777X by Emirates, and Airbus got an order of $20 billion for 50 A380, also by Emirates.
Demand is also backed by strong fundamentals, with travel demand up 5.3% in 2013 and expected to top 6% this year.
Alcoa Fastening Systems states it manufactures “millions of parts per day for thousands of customers worldwide; and for every aerospace application, material, and design challenge imaginable.”
Alcoa Fastening products include self-locking nuts, high-pressure hydraulic fittings, threaded inserts and studs, panel fasteners, latching systems and bolts.
According to the 2013 report on Alcoa by GlobalFastenerNews.com, Alcoa Fastening Systems operates 32 manufacturing and distribution facilities in the U.S., Mexico, Europe, Asia and Australia. AFS employs 6,800 people in two divisions: Aerospace and Industrial.
• For the first quarter 2014 FIN Stock Index, click here. The FINdex demonstrates the performance of 21 fastener stocks, including Alcoa.
• For a summary of Alcoa Fastening’s past five years, FIN Subscribers can click on FIN Stock Review.
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