Shares of Precision Castparts Corp. jumped in trading Monday, after the metal product company said it will buy Titanium Metals Corp.
THE SPARK: Precision said Friday that it is buying the titanium products company in a deal worth roughly $2.9 billion. Precision said the acquisition will allow it to expand in the titanium and aerospace markets, as well as streamline its supply chain and better manage operational costs.
THE BIG PICTURE: Titanium Metals, known as Timet, is based in Dallas and has production facilities in the U.S. and Europe. It supplies nearly one-fifth of the world's titanium. The metal is in high demand among commercial aerospace manufacturers for jet-engine components and airframe structures because it reduces weight and increases fuel-efficiency.
Precision and Timet have worked together for a number of years. As a result, the company expects the integration of the business to move quickly once the transaction closes, which is expected by year-end.
THE ANALYSIS: Sterne Agee analyst Peter Arment raised his estimates and price target on Precision. He said the deal is a needle mover and a huge strategic opportunity to improve Precision's long-term earnings. Arment increased his share price target by $27 to $217.
SHARE ACTION: Precision shares rose $8.27, or 4.8 percent, to $179.60. The stock is up nearly 30 percent since August. Shares of Timet soared $4.90, or 42.4 percent, to $16.47 in midday trading.