Michael Ciarmoli
Michael Ciarmoli covers companies in the aerospace and defense sector as a director of the capital goods equity research team for SunTrust Robinson Humphrey, Atlanta, a division of SunTrust Banks.
This week’s Stock of the Week supplies crucial equipment to various industries, but some recent issues have knocked the stock back—making it a bargain.
KLX Inc. (KLXI) distributes aerospace consumables to the defense and aerospace industries—items such as nuts and bolts, washers, chemicals and lubricants. Its customers include Boeing, Airbus and other aircraft manufacturers—and the parts it supplies are important both for the routine maintenance of an aging worldwide fleet and for unanticipated repairs.
Despite the company’s strong distribution network and solid business since it was spun off from B/E Aerospace in 2014, KLX stock has recently not done well—largely because 10% of its revenues are exposed to the oil and gas market. The collapse of the energy segment led to a $90 million operating loss in that part of its business last year, and that area—tightly tied to oil prices—continues to lose money. Also, airline manufacturers are squeezing their suppliers, possibly harming KLX’s profit margins over time.
But cost cutting, other increased efficiencies and the expansion of the worldwide aircraft market—plus the increasing need for scheduled maintenance, from which KLX gets 50% of its aerospace revenue—are positive trends. Revenue of $1.49 billion in 2016 will likely grow to $1.76 billion this year and $1.89 billion in 2018.
Fiscal year: January (but reports for previous calendar year). Earnings per share: 2018 est./$3.58…2017 est./$3.04…2016/$1.43.
Michael Ciarmoli covers companies in the aerospace and defense sector as a director of the capital goods equity research team for SunTrust Robinson Humphrey, Atlanta, a division of SunTrust Banks.
