On Dec 24, 2014, shares of Rockwell Collins Inc. (COL) soared to a new 52-week high of $86.57, finally ending the trading session a tad lower at $86.16. This defense prime, with a market cap of around $11.45 billion, has seen its shares surge roughly 16.37% in the last 52 weeks, outperforming the 13.02% gain of the S&P 500 over the same period.
What is Driving Rockwell Collins?
Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. The company’s balanced exposure to both types of customers allows it to use government funding for developing products for the dual-end market. This leads to higher volume sales, which create economies of scale in cost-sensitive government contracts.
There have been a number of share price gainers in the defense sector in 2014, with Rockwell Collins being one to witness gains driven by consistent contract wins and a stable financial position. The company has beaten earnings estimates for the last four quarters and posted an average 1.5% positive earnings surprise. Rockwell Collins’ fiscal fourth-quarter earnings were supported by its research and development, and strategic acquisition program, which boosted sales in the reported quarter and helped it to beat the Street estimates.
The company continues to receive significant boost from the ARINC acquisition. On Dec 23, 2013, the company had acquired the airline communications and information processing solution major ARINC Inc. for $1.4 billion. The addition of ARINC’s high-quality ground network and services boosted Rockwell Collins’ existing information management capabilities with its application beyond avionics and cabin technologies. ARINC contributed $144 million to the revenues in fourth-quarter fiscal 2014 and $421 million to the total revenue in fiscal 2014.
The company had an operating cash flow of $660 million in fiscal 2014, 11% higher on a year-over-year basis, ARINC alone contributing $35 million to the operating cash flows. The company expects major traction from the acquisition, with operating cash flows expected to more than double in fiscal 2015.
Apart from its acquisition-driven growth strategy, the company will gain from its continued investments in research and development. The company invested $934 million on research & development in fiscal 2014. For fiscal 2015, the company plans to invest a total of $950 million on research & development. Going forward, continued emphasis on enhancing its products and bringing in innovative technologies is bound to result in more contract wins for the company.
Rockwell Collins expects earnings for fiscal 2015 in the range of $4.90–$5.10 per share on total revenue of $5.2–$5.3 billion. The projected earnings are higher than $4.51 per share earned in fiscal 2014.
Zacks Rank
Rockwell Collins sports a Zacks Rank #2 (Buy). Other well-ranked stocks in the same industry include Spirit AeroSystems Holdings, Inc. (SPR), Teledyne Technologies Inc. (TDY) and Hexcel Corp. (HXL). Spirit sports a Zacks Rank #1 (Strong Buy), while Teledyne and Hexcel carry the same Zacks Rank as Rockwell Collins.
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