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Precision Castparts soars on Titanium Metals deal

The Associated Press

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.