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Updated Research Report on Rockwell Collins

Zacks Equity Research

On Mar 7, 2014, we issued an updated research report on Rockwell Collins Inc. (COL). Recently, this aviation and military electronics maker posted strong fiscal first quarter 2014 results with the top and bottom line coming in above the Zacks Consensus Estimate.

The upcast in earnings reflects solid contribution from its Commercial Systems and Government Systems segments. Rockwell Collins delivered a positive earnings surprise in three out of the last four quarters, with an average beat of 0.99%. These results reflect the company’s strong operational performance.

Again, the company completed the acquisition of airline communications and information processing solution major, ARINC Inc., a portfolio company of The Carlyle Group, for $1.42 billion during the quarter. The integration of ARINC’s high-quality ground network and services will definitely boost Rockwell Collins’ existing information management capabilities with its application beyond avionics and cabin technologies. ARINC is a frontrunner in the aviation management industry and offers technical support to almost every sphere of the airline business starting from pilots, operators, maintenance, passengers, and controllers to regulators, security and airport operations.

Although the recent Omnibus bill came as a sign of relief for the defense companies, Rockwell Collins is also focusing more on expanding its international businesses to combat the effect of budget cut. This will certainly help to secure a stable revenue stream going forward. In addition, the company is upgrading its core competence besides engaging in innovation. In this connection, it is worth mentioning that the Omnibus bill provides Pentagon with nearly $93 billion to buy weapons and another $63 billion for research and development.

In its first quarter of fiscal 2014 earnings call, the company lifted its fiscal 2014 outlook. The company now expects revenue in the range of $4.95 billion to $5.05 billion (up from $4.50–$4.60 billion) and earnings per share in the range of $4.35 to $4.55 (up from $4.30–$4.50). Total segment operating margins are expected in the range of 20% to 21% versus its earlier expectation of 21% to 22%.

However, going forward, the defense sector will still continue to face headwinds as Pentagon’s spending moderates from historical levels.

Key Picks from the Sector

Rockwell Collins currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Alliant Techsystems Inc. (ATK), Astronics Corporation (ATRO) and BAE Systems plc (BAESY). All these stocks hold a Zacks Rank #1 (Strong Buy).

Read the Full Research Report on COL
Read the Full Research Report on ATRO
Read the Full Research Report on ATK
Read the Full Research Report on BAESY

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