Serial Aero Industry acquirers like TDG and TGI typically acquire at an EBIT multiple of 5 - 7x. Having said that though, EDAC is worth more than that multiple. It's growth rate is higher than typical, and outlook more favorable. However, it's useful to view the 5 - 7x EBIT multiple as a floor. A quick, back of the envelope valuation calculation per share for EDAC based on a 7x EBIT multiple:
Q2 EBIT $2.5 M x 4 Qs = $10 M annual EBIT x 7 multiple = $70 M / 5.25 M shares o/s = $13.33
.... which is why this thing is not trading in the high teens, low 20s. It'll get there, but EBIT, profits need to continue to march higher. In the mean time, we're about where we need to be based on common valuation metrics used in the Aero industry, and the more than favorable fundamental trends for the business of EDAC.
Anyone remember the EBIT valuation calculation we ran through back in Aug of 2012? ... Serial Aero acquirers (like TDG, TGI, and PCP) pay EBIT multiples of 5 - 7x for the companies they acquire. If we update the EDAC EBIT calc for the last reported Q (Sept 2012):
Q3 EBIT $2.8 M x 4 Qs = $11.2 M Annual EBIT x 7 multiple = $78.4 M / 5.25 M shares o/s = $14.93
Keep your eye on the reported EBIT number, and any indication of the most recent share count. Do this calculation. The value you arrive at should be a decent floor. It certainly can trade lower however if there is any expectation that the EBIT they deliver in the coming year will be lower than the prior year.
Fair enough. But I'm still looking for the earnings to take a hit at some point soon from unexpected expenses associated with the facility move. However, we could also get announcement of a huge deal with Pratt on new engine programs .... any time now. So, it's very difficult to gauge where this thing is headed over the next quarter or two. I'm thinking it will trade between $13 and $16 between now and YE. Pratt deal could propel it to $18. A bad stumble on the facility transition could take it to maybe $11. I'll feel better about the company after they get the facility transition behind them.
Good to see some restraint in your post that is not always there. I agree that this is the right P/E level for EDAC now, and anything above the typical aero P/E mid-range will have to be supported by enhanced earnings/contracts.
That said, sorry to see yesterday's gain vanish today, but that is our present market......here today, gone tomorrow. Sometimes it doesn't pay to get out of bed.
EDAC will earn between $0.30 and $0.32 the next 2 quarters. They also have confidence in signing a major $50 to several hundred million $ contract with Pratt by the end of the year. Beyond that, plane orders remain robust and the real rampup hasn't even happened yet. Oh, and EDAC's profit margins will continue going higher, so says the CEO. EDAC should be trading at closer to a 20 multiple instead of the average. This is why EDAC is constantly undervalued.
No worries though. EDAC will see $20 soon enough and then join the Russell 3000. I have all the patience in the world.