Investing in the aeronautics sector provides few opportunities for the savvy investor. Many of the stocks are grossly overvalued. However, there is an undervalued play in the aero-structures segment of the sector. It has earned a spot on my watch list, and hopefully yours, for the next few quarters.
CPI Aerostructures, Inc. (NYSE: CVU) engages in management and assembly of components to assist production during the manufacturing life cycle of an aircraft. These functions reduce the amount of time needed to improve program efficiencies for customers. The company then assigns manufacture of parts to other companies. The parts are then assembled to create components for integration on aircraft platforms. Over time, CPI Aerostructures has delivered components such as aircraft aprons, cowls, door assemblies, engine components, surveillance pod assemblies, engine mounts and flight control surfaces.
It was an exciting 2012 for CPI Aerostructures. The company was chosen by Sikorsky Aerospace Services (SAS) to repair the stabilator assemblies for its helicopter. CPI also announced it has reached an agreement with bankers to increase credit commitments to $35 million from $17 million and to go on with a $3.9 million loan. The company was also awarded a contract by Cessna Aircraft Company to supply wing spars for Cessna’s Citation X. Finally, Forbes chose the company as one of the best small-caps in the United States.
CPI recently released its 2012 unaudited results versus its 2011 audited report. The company had revenue of around $89.6 million in 2012, an increase of 21 percent from $74.1 million in 2011. Net income was about $11.1 million, an increase of 50 percent from $7.4 million in 2011. Net income per diluted share was $1.42, an increase of 37 percent from $1.04 in 2011. Gross margin for 2012 exceeded projected range of 25 percent to 27 percent. Edward J. Fred, CPI Aero’s President & CEO, noted that “2012 was the best year in CPI Aero’s history in terms of revenue and net income; however we underestimated the severity of the marketplace uncertainty that weighed on our industry for the better part of 2012.”
When looking at the figures of CPI Aerostructures, it is not difficult to assess its valuation in relation to others. I want to compare it with two of its biggest rivals, Boeing (NYSE: BA) and Lockheed (NYSE: LMT). These two companies have market caps of $58.51 billion and $28.29 billion respectively. Boeing sells for around $77, while Lockheed sells for around $87. CPI’s market cap is just $79 million, selling at around $9 per share. In other words, the potential for profit will grow as the company grows. Small-caps have more room for growth and CPI is a strong company well positioned to expand.