Global Aerospace stocks prove more defensive in recent market correction

3 July 2018, Global – We have launched a series of reports to track whether the global transport stocks’ valuations have bottomed out following their recent correction for your easy reference. In our third report, we will focus on the listed Aerospace companies globally.

The global Aerospace sector is trading at 31.6x P/E currently, only a 4% discount to its historical average valuation in the past 5 years. We expect this sector’s share price performance to be more resilient than the market given the relatively more defensive and often counter-cyclical nature of their earnings.

However, for companies whose commercial order momentum is weakening and are not offset by increased defense spending, their share prices will have downside risk, in our view. The global Aerospace companies’ P/E valuations are still twice as high as their historical trough levels.

Chart: Global Aerospace Companies Current P/E Valuations versus Historical Average and Trough Valuations in Past 5 Years

Global Aerospace Companies Current P/E Valuations versus Historical Average and Trough Valuations in Past 5 Years

Chart: Global Aerospace – Current P/E Valuations (2018)

Global Aerospace – Current P/E Valuations (2018)

Only 8 listed Aerospace companies are trading less than 30% above their historical trough valuations

Currently, there are only 8 listed Aerospace companies trading less than 30% above their historical trough P/E valuations globally. These include GMFI, Arconic, Aerospace Hi-Tech, AVIC Aircraft, Meggitt, ST Engineering, Senior and Safran.

In fact, 45% of the global Aerospace companies are trading above twice their historical trough valuations. These include Boeing, BAE Systems, Airbus, Rolls-Royce, Qinetiq, L3 Technologies, Triumph Group, Raytheon, Spirit Aerosystems, Northrop Grumman, Cobham, Harris Corporation, Korea Aerospace, Thales, Dassault Aviation, AVIC International, HAECO, Shanghai Aerospace and Bombardier.

Chart: Global Aerospace – Current P/E Valuations versus Trough Valuations in Past 5 Years

Global Aerospace - Current P/E Valuations versus Trough Valuations in Past 5 Years

There could still be some attractive entry points for investors as 60% of the global Aerospace companies’ valuations have fallen below their 5-year historical average valuations following the recent market correction.

Among them, Aerospace Hi-Tech, Shanghai Aerospace, AVIC Aircraft, Cobham, Arconic, Mercury Systems, Meggitt, China Spacesat, China Avionics Systems, Leonardo, Senior, China Aerospace Times, AviChina Industry & Tech, Ultra Electronics are trading at the deepest discounts to their 5-year historical average valuations.

Chart: Global Aerospace – Current P/E Valuations versus 5-Year Average Historical Valuations

Global Aerospace - Current P/E Valuations versus 5-Year Average Historical Valuations

Note: Stocks with upside of more than 10% based on our fair value are assigned an Outperform rating. Stocks with downside of more than 10% based on our fair value are assigned an Underperform rating. Stocks with upside or downside of less than 10% based on our fair value are assigned an In-line rating. These are Crucial Perspective’s proprietary rating classifications and by no means serve as investment recommendations.

 

Independent Research Declaration: Crucial Perspective does not own any position in the equities featured in this report nor have we received any compensation for writing this report. 

 

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