Wednesday, July 16, 2008

Report: Deal Making Will Stay Aloft In Aerospace

Washington, D.C. - Over the past 12 months, valuations have plunged in the aerospace and defense sector. Last July, for example, U.S. aerospace and defense stocks traded at an average 23 times trailing-12-month earnings, according to an aggregate compiled by FactSet Research Systems. The average price-to-earnings ratio presently: 13.

Despite the compression in the average earnings multiple, it is not easy to be bullish here, as business has turned nasty for commercial aerospace customers. Tuesday, the Air Transport Association, the airlines’ trade group, announced that first-quarter expenses for airlines grew at the fastest pace since 1980. The biggest culprit: a 51% year-over-year increase in the average price of aviation fuel.

Beyond pure contrarianism, do bargain hunters have any reason to jump into aerospace and defense? One may be consolidation. As some investors retreat from these companies, corporate deal makers remain interested, according to a report released Monday by PricewaterhouseCoopers. The accounting firm says the sector saw $31 billion worth of aerospace and defense acquisition activity worldwide in 2007, the most since a peak of $46 billion in 2000, and forecasts significant merger and acquisition activity for the next one to two years.

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