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Company: Precision Castparts (PCP)
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66%
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3 votes

  Great business model, financials

"I just got a chance to review PCP and without digging in deep about future business potential, the company looks awesome. The balance sheet is strong, there is little debt (not sure about the $376.4 million in other liabilities though), operating margins are awesome considering gross margins are under 30%, operating cash flow is off the charts and there have been small insider purchases. "


I decided to dig in deeper and like what I see. Precision Castparts is a company that creates everything from fasteners to "the world's largest diameter stainless steel, nickel-based superalloy, and titanium components" according to their website. The company primarily services the aerospace, power generation (gas turbine, coal and nuclear) and automotive industry. More than half their revenue (51% to be precise) comes from the aerospace sector, while power generation represents 23% of revenue. Given the current state of the automotive industry, thankfully the company only derives 5% of its revenue from the automotive sector as you can see from the chart below. Over the last two years, the company has been shifting its revenue mix to reduce its dependence on the aerospace sector.

The company makes parts that are used both in Boeing and Airbus aircraft as well as military planes and choppers. To mitigate its risk from rising metal prices, the company acquired Nickel alloy producer Special Metals Corporation in 2006. Beyond this direct exposure to the commodity market, the company should actually benefit from the recent drop in metal prices. Management appears to be confident about its business pipeline and based on this positive outlook, Moody's upgraded Precision Castpart's corporate debt from Baa2 to Baa1.

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