Rockwell Collins' New Purchase - Analyst Blog

Rockwell Collins Inc. (COL), a supplier of avionics and military equipment, acquired Computing Technologies for Aviation Inc. (CTA). CTA is a leading provider of flight operations management solutions for corporate flight departments and other aviation customers.

The acquisition adds to the broad capabilities of Rockwell Collins' proprietary new Ascend flight information solutions offering for business aircraft operators. New Ascend flight information solution offers a full-range of applications and services that streamline flight operations.

CTA develops, markets and supports a comprehensive Flight Operations System (FOS) for corporate, government, aircraft management and charter, repair stations and regional airlines operations.

Rockwell Collins is the foremost global supplier of communications and avionics equipment for both commercial and military customers. Its balanced exposure to both types of customers allows the company to avail government funding to develop products for the dual-end market. The dual-end market leads to higher volume sales, which create economies of scale that help attain cost-sensitive government contracts.

Rockwell Collins' fortunes are tied to the cyclical commercial aerospace market, which is currently undergoing a steady recovery. Per The Boeing Company's (BA) Current Market Outlook (CMO), the world economy will continue to rebound going forward.

Boeing pointed out that the airlines industry will see a rebound in passenger and cargo traffic revenue this year and should return to profitability in 2011. This would come as a welcome relief for Rockwell Collins, for it generated 42% of its fiscal 2009 revenue from aircraft manufacturing; airlines; and business jet owners/operators.

Rockwell Collins' expects to release its quarterly numbers on January 20, 2011. The Zacks Consensus estimate for the quarter currently stands at 87 cents.

In the near-term, however, risks regarding realignment of 2012 defense budget focus, pace of business jet market recovery, tepid air transport aftermarket sales growth and high research & development cost will affect the fortunes of Rockwell Collins, a Zacks #3 Rank (Hold) stock. We currently have a long-term (6 months and higher) Neutral recommendation on Rockwell Collins.

In the near-term we would advise investors to focus on Rockwell Collins' Zacks #1 Rank (Strong Buy) peers like Esterline Technologies Corporation (ESL) and AAR Corporation (AIR).

 
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