Thursday, Credit Suisse upgraded Esterline Technologies Corp. (ESL) shares to Outperform from Neutral and increased its price target to $43 from $32.
While ESL has strong breadth across the typically late-cycle aerodefense market, analyst Spingarn thinks its 18% sales (higher % for EBIT) exposure to commercial aftermarket will allow it to benefit from the nearer-term recovery in spares demand that he anticipate in 2010. Thus the analyst sees a single down EPS year in 2009 as ESL's diverse markets and acquisitive strategy should drive growth thereafter.
The analyst noted that the February sell-off to $20 traces to an abnormally soft fiscal first quarter of $0.38 which startled investors following 8 prior quarters averaging $0.93 (albeit with volatility). The market rightfully questioned ESL's $3.70-$3.90 fiscal 2009 guidance after it delivered only 10% in fiscal first quarter.
However, since then, airline traffic seems to be near bottom, and markets are now considering longer-term earnings power. With a more typical fiscal second quarter report of $0.85 in May and an adjusted in guidance to a more reasonably achievable range of $3.00-$3.20, the shares rallied quickly to above $30 on June 5. The analyst sees the recent pull-back to $26 as a good opportunity to get more involved.
Today, ESL is the analyst's least expensive aerospace name with a P/E of 8.4x (calendar 2009) & 7.3x (calendar 2010) & EBITDA multiple of 5.6x & 5.3x, respectively, offering a discount to peers of 12-28%. As well, the B/S is solid with net debt at 28% & FCF yield of 11%. The analyst thinks the days of trough multiples (10x) on trough earnings are over as the market gains visibility.
Thus, the analyst expands his target multiple to the more historically normalized 12x for ESL's commercial aerospace (40% of total) and industrial ops (20%). For the defense biz (40%), which has sufficient international retrofit exposure to outpace U.S DoD budget growth, the analyst applies a slight premium of 10% to the 11x average he uses for Pentagon-dominated peers, yielding a new price target of $43.
Currently, ESL is up $2.46 or 9.45% and trading at $28.48.
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June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.