美国航空航天与国防Q4预览：差别不大

1、23 January 2019 Americas/United States Equity Research Aerospace & DefenseResearchAnalystsRobertSpingarn212 5381895 HYPERLINK mailto:robert.spingarn JoseCaiado212 3256771 HYPERLINK mailto:jose.caiado AudreyPreston212 3252709 HYPERLINK mailto:audrey.preston ScottDeuschle212 3256116 HYPERLINK mailto:s

2、cott.deuschle Aerospace & DefensePRE RESULTS COMMENTPRE RESULTS COMMENTQ418 Defense Preview: The Differences are MarginalFor our 2019 Defense/Fed IT macro view and expectations, see our note HYPERLINK /s/V7e2x34AN-8SW 2019 Defense Outlook: For Whom the Bell TollsRevisited.2019 Margin Guidance is Key

3、 Relative Unknown: We expect solid Y/Y growth to continue for most names in Q4 (with the exception of LMT, which had one less calendar week than the PYQ), as outlays from strong 2018/2019 appropriations bills continue to track upward. So with 2018 largely known and in the rearview at this point, the

4、 focus will naturally be on 2019 guidance. Here, well look for broadly similar top-line growth rates across Defense hardware, in the 5-8% (organic) range. Margin trajectories is where we expect greater differences, with certain names (HRS, LLL, NOC) likely to see Y/Y segment margin improvement due e

5、ither to ongoing cost cutting efforts or to portfolio maturation, while others (LMT, RTN, GD) struggle to hold the line on margins, or even see some modest declines as modernization (or other factors for GD) creates mix headwinds. Capex has been telegraphed to remain elevated for most names, limitin

6、g FCF growth for 19, with 20 offering the start of capexnormalization.Partial Shutdown Leaves Defense Hardware Relatively Secure: As DoD is a funded agency for GFY19, hardware contractors should not generally be affected by the shutdown, except (1) to the degree that they have exposure to shutdown-i

7、mpacted civilian agencies and (2) to the extent that the shutdown increases future funding uncertainty, leading DoD to horde longer-cycle budget authority. Regarding (1), we note that GD IT has some vulnerability, particularly after the acquisition of CSRA (55% Civil per 2017 10K). LLL has some down

8、side from L3 Security and Detection Systems, which sells into TSA (4% of LLLs 2017 sales came from non- DoD U.S. government agencies), though any lost sales here are likely to be timing related and recoverable. HRS does not appear to be exposed, as its FAA work is largely mission critical, and there

9、fore will proceed independent of the shutdown. RTN and NOC perform some work for civilian agencies (e.g. NASA, intelligence agencies), but we believe this is generally either mission critical work and/or can proceed for some time withoutinterruption.Fed IT More Vulnerable: We see moderately greater

10、exposure for our Federal IT names (BAH, LDOS, CACI, MANT) as well as GD, which generate 15%+ of their revenues from non-DoD agencies, a portion of which are impacted by the shutdown. While the impact to CY Q4 results should be generally immaterial (as the partial shutdown largely started over the ho

11、lidays), we do expect some financial impact to Fed IT CYQ1 financial results (revs, margins, cash collections, bookings), which could become more material if the shutdown drags on beyond January. However, the fact that this is a partial shutdown (impacting only a portion of the contractors civil por

12、tfolio, which itself is a minority of overall revenues), and that backlogs are at record levels (allowing for the re-allocation of workers) should help mitigate the impact to top and bottom line, at least as compared to the per day impact from the whole government shutdown in 2013. See Figure 1 for

13、non-DoD revenue exposures for Fed ITnames.DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Creditto do in its As a be the a of of as a in Figure 1: FY17 Non-DoD Federal Gov

14、ernment RevenueShare*16%18%27%16%18%27%27%33%30%25%20%15%10%5%0%BAHCACILDOSMANTGD*Source: Company data, Credit Suisse estimates*Percentages above exclude intelligence agency exposure for BAH and MANT. CACI, LDOS, and GD percentages include intelligence agency revenues.*GD data for 2017 is presented

15、on a pro forma basis to include the impact of CSRA. Includes $2.85B in 2017 legacy GD non- DoD US Government sales and $2.74B in 2017 CSRA civilian agency sales.Capital Allocation: In light of recent stock market weakness, we expect many contractors to become more aggressive on capital allocation, w

16、ith a focus toward buybacks. Share repurchases could contribute to EPS beats in the quarter, depending on how aggressive contractors were during Q4 marketweakness.Pension Contribution Guidance: Another focus for investors will be on pension-associated cash flows. While CAS has been pretty well teleg

17、raphed by most contractors as remaining elevated and steady through the mid-2020s (with the exception of HII, where CAS is expected to decline in 19), we note that ERISA contributions are susceptible to greater variability. Here, 2018s market weakness will likely have a negative impact on plan fundi

18、ng status, perhaps resulting in more short lived pension funding holidays for 19/20. This could create headwinds to OCF forecasts and potential downside to out-year FCF estimates, other things being equal.Greater Scrutiny on Out Year Trends: With 2018 moving into the rear view and 2019 clarifying wi

19、th guidance introductions/refinements, we anticipate that the questions on earnings calls and the topic of debate for investors will begin to focus more on 2020 and 2021. Key here will be the pace of out-year revenue growth as well as the trajectory for margins. Pension cash flows will also be impor

20、tant (see previous point). We will look to 10K filings for color on pension status. The timing and pace of capex normalization will also be a key question on earnings calls, as this trend will help sustain FCF growth as relative pension tailwinds decline for some contractors beyond2020.OCO Exposures

21、: For most names, we expect either prepared remarks or the Q&A to offer insight into OCO/war theater exposures given the Administrations latest withdrawal strategy. This is likely to apply across hardware names as well as services contractors, some of whom have exposure to overseasoperations.Partial

22、 Government Shutdown ExposuresFed IT 2013 Government Shutdown Earnings Remarks: To inform a view on the impact of the 18/19 shutdown, it is helpful to examine how each company fared through the last shutdown, even though it is not an apples-to-apples compare. In the quarter following the 2013 shutdo

23、wn, we note that a number of names in our Fed IT coverage reduced guidance for the year, which they attributed in whole or in part to the government shutdown. Selected CYQ413 earnings call remarks are included below. Again, we note that while the current shutdown is longer, it is a partial shutdown

24、and therefore to date is likely to prove less severe than the 2013 complete government shutdown. However, length of a shutdown can offset scope, so the financial repercussions if the current shutdown could begin to approach similar levels as it extends further into theyear.BAH, Samuel Strickland, fo

25、rmer CFO: “Last quarter, I told you that I anticipated the October government shutdown would have a roughly $30 million impact to revenue, and in fact we did see that in the third quarterIn the third quarter of fiscal 2014, operating income decreased to $97 million from $116.6 million in the prior y

26、ear period, and adjusted operating income decreased to $99.1 million from $120.8 million in the prior year period. The decrease in operating income and adjusted operating income was primarily driven by the combination of headcount reductions and an increase in unbillable labor as a result of the gov

27、ernment shutdown. Our days sales outstanding were 66 days for the quarter ended December 31, 2013, which is consistent with the prior quarter, but increased slightly over the prior year period, due largely to the impact of the governmentshutdown.”CACI: Ken Asbury, CEO: “As Tom will point out in a fe

28、w moments, the recent 16- day government shutdown did not have a material impact on our business. And as we said when we first issued our guidance in June, we continue to assume the U.S. government will operate under sequestration as required by current law and CRs throughout the current fiscal envi

29、ronment. This includes the net impact of the government shutdown, which we estimate to be $10 million in revenue and $4 million in operatingincome.”LDOS: John P. Jumper, former CEO: “In October, we experienced a significant decline in collections from the government, driven by the government shutdow

30、n, our own planned IT shutdown to enable our separation, and customer confusion driven by our name change. The combination of these factors resulted in a substantial change in our working capital usage, adversely impacting our operating cash flow in Q3 and extends into our forecast for the fourthqua

31、rter.”MANT: Kevin Phillips, CEO: “we are adjusting the guidance that we gave on the last call based on three unanticipated factors. The first factor is the government shutdown. At peak levels, we had more than 1,200 employees unable to charge their contracts in the fourth quarter as a result of the

32、shutdown. Many intelligence customers who have previously been immune to furloughs or shutdowns were closed the entire 16-day period, temporarily ceasing their sensitive missions. The second factor is the continued slowdown in the awards and start-ups on awards due to the shutdown.Orders have been s

33、low so far in the fourth quarter, as the shutdown has exacerbated delays in RFPs and contractawards.”Americas/United States Aerospace & DefenseRatingPrice(18-Jan-19, US$)168.58Targetprice(US$)190.0052-week pricerange(US$)229.95 -148.21Market cap(US$ m)49,925General Dynamics Corporation (GD)Gulfstrea

34、m, GDIT in Focus for 2019priceisfor12priceisfor12ResearchAnalystsRobertSpingarn212 5381895 HYPERLINK mailto:robert.spingarn JoseCaiado212 3256771 HYPERLINK mailto:jose.caiado AudreyPreston212 3252709 HYPERLINK mailto:audrey.preston ScottDeuschle212 3256116 HYPERLINK mailto:scott.deuschle Share price

35、performance2 402 202 001 801 601 40A p r- 18l -18O ct- 18Jan - 19GD.NS& P 5 0 0IN D EXOn 18-Jan-2019 the S&P 500 INDEX closed at 2670.71 Daily Jan22, 2018 - Jan18, 2019, 01/22/18 = US$208.2Quarterly EPSQ1Q2Q3Q42017A2.482.452.51 2.502018E2.652.622.89 2.972019E-Numbers to Look For: Investors will focu

36、s on margins for GDIT and Aerospace, which are likely to show the greatest variability both in the quarter and into 2019. Here, we are looking for Aerospace margins of 14.7% for Q4 as deliveries of the G500 ramp with a margin dilutive impact for the first few lots. GD IT, meanwhile, should see a seq

37、uential recovery in margins to 7.8% (+100bps Q/Q) as cost savings are realized and the company sees lower charges. For 2019, we expect these two trends to continue, with Aerospace margins down 200bps Y/Y (to 15.75%) while GDIT margins inflect upwards on the relative absence of charges and the beginn

38、ings of cost synergies. We see marine margins down 30bps Y/Y (on Columbia ramp), offset by 30bps of margin improvement in Mission Systems and Combat Systems as the two segments see beneficial incremental margins on legacy programs. Overall, we expect this to drive 5.9% Y/Y EPS growth, vs 8.2% Y/Y EP

39、S growth embedded in consensus. For the call, we expect some commentary regarding the impact of the partial government shutdown, to which GD has greater exposure than other defense large caps, owing to the acquisition of CSRA (55% civil per CSRA 2017 10K) and legacy GDIT.Reminder from Last Quarter:

40、Revenues of $9.1B missed consensus by 3%, while margins were stronger than expected at 12.5% and EBIT came in 1% below expectations. Adjusted EPS of $2.89 beat consensus by 13-cents (+5%), though EPS missed by 1-cent after accounting for lower tax. The tax rate dipped to 15.5%, resulting in a 14-cen

41、t tailwind toEPS.Estimates: We increase our 19/20 EPS estimates to $11.78/$13.60 on minor model maintenance. Risks include DoD budget risk, execution, and integrationissues.Financial andvaluationmetrics Year12/17A12/18E12/19E12/20E EPS (CSadj.)(US$)9.9511.1311.7813.60Prev. EPS (US$)9.49-11.7713.58P/

42、E rel. (%)83.492.192.288.6Revenue(US$m)30,973.036,218.039,071.041,404.9EBITDA (US$ m)4,629.05,128.55,458.75,960.2OCFPS (US$)12.7312.7314.1915.63P/OCF(x)16.013.211.910.8EV/EBITDA(current)13.412.111.310.4Net debt(US$m)9999,2968,2896,845ROIC(%)24.0616.2616.7918.36Number ofshares(m)296.15IC (current,US$

43、m)BV/share (Next Qtr.,US$)43.9EV/IC (x)Net debt (Next Qtr.,US$m)7,599.9Dividend(current,US$)3.72Net debt/tot eq(NextQtr.,%)57.8Source: Company data, Thomson Reuters, Credit Suisse estimatesGeneral Dynamics Corporation (GD)Income Statement12/17A12/18E12/19E12/20ERevenue (US$ m)30,973.036,218.039,071.

44、041,404.9EBITDA (US$ m)Income Statement12/17A12/18E12/19E12/20ERevenue (US$ m)30,973.036,218.039,071.041,404.9EBITDA (US$ m)4,6295,1285,4595,960Depr. & amort.(441)(674)(772)(788)EBIT (US$)4,1884,4544,6875,173Net interest exp(103)(355)(378)(313)PBT (US$)4,0774,0744,3094,860Income taxes(1,165)(737)(84

45、0)(948)Profit after tax2,9123,3373,4693,912Minorities-Reported net income (US$)3,0313,3373,4693,912Other NPAT adjustments0000Adjusted net income3,0313,3373,4693,912Cash Flow12/17A12/18E12/19E12/20EEBIT4,1884,4544,6875,173Net interest(103)(355)(378)(313)Change in working capital(443)(378)(214)(304)CA

46、PEX(428)(616)(742)(787)Free cashflow to the firm3,4513,2023,4343,709Acquisitions(399)(10,039)00Divestments-Cash flow from investments(791)(10,486)(742)(787) Changes inNetCash/Debt555(8,297)1,0071,444 Balance Sheet (US$)12/17A12/18E12/19E12/20EAssetsCash & cash equivalents2,9833,9003,2352,179Total cu

47、rrent assets18,27620,58120,70720,121Total assets34,99438,87940,06639,378LiabilitiesTotal current liabilities13,04713,80716,88117,547Total liabilities23,55925,73625,88123,547Total liabilities and equity34,99438,87940,06639,378 Netdebt9999,2968,2896,845 Per share12/17A12/18E12/19E12/20ENo. of shares (

48、wtd avg)305300294288CS adj. EPS9.9511.1311.7813.60Prev. EPS (US$)9.49-11.7713.58Dividend (US$)3.273.634.004.40Company BackgroundCompany BackgroundGeneral Dynamics Corporation offers a portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; military an

49、d commercial shipbuilding, and communications and informationtechnology.Blue/Grey Sky ScenarioOur Blue SkyOur Blue SkyScenario (US$)238.00 Free cash flowpershare11.3310.6811.6712.90 Our Blue Sky valuation of $238 assumes P/E can re-rate to 17.5x, driven by better than expected cost synergies from th

50、e CSRA acquisition, greater than expected increases in funding for Naval shipbuilding, continued strong international demand for combat systems, better than expected performance at GD Marine, and greater than expected demand for Gulfstreams new G500/600 bizjets.Our Grey Sky Scenario (US$)109.00Our G

51、rey Sky valuation scenario of $109 assumes that P/E re-rates to 8.0 x as a result of worse-than-expected defense budget outcomes, namely the Navys ability to execute some of its planned production rate increases, and Army modernization plans go back on hold given other budget priorities. The large-c

52、abin business jet market deteriorates again (or competition increases) requiring deep discounting and/or productioncuts.Share price performanceEarnings12/17A12/18E12/19E12/20EEarnings12/17A12/18E12/19E12/20ESales growth (%)1.3EBIT growth (%)10.4Net profit growth (%)21.910.13.912.8EPS growth (%)15.4E

53、BITDA margin (%)14.914.214.014.4EBIT margin (%)13.512.312.012.5Pretax margin (%)11.7Net margin(%)9.4Valuation12/17A12/18E12/19E12/20EEV/Sales (x)1.641.641.491.37EV/EBITDA (x)13.412.111.310.4EV/EBIT (x)12.213.312.411.0P/E (x)16.915.114.312.4Price to book (x)3.1Asset turnover1.1Returns12/17A12/18E12/1

54、9E12/20EROE stated-return on (%)27.927.225.426.1ROIC (%)24.116.316.818.4Gearing12/17A12/18E12/19E12/20ENet debt/equity (%)8.770.758.443.2Interest coverage ratio (X)40.712.512.416.5Quarterly EPSQ1Q2Q3Q42017A2.482.452.512.502018E2.652.622.892.972 202 001 801 601 40Apr- 18l -18Oct- 18Jan - 19GD.NS& P 5

55、 0 0 IND EX 2019E- On 18-Jan-2019 the S&P 500 INDEX closed at 2670.71 Daily Jan22, 2018 - Jan18, 2019, 01/22/18 = US$208.2Source: Company data, Thomson Reuters, Credit Suisse estimatesAmericas/United States Aerospace & DefenseRatingPrice(18-Jan-19, US$)142.78Targetprice(US$)176.0052-week pricerange(

56、US$)173.53 -127.26Market cap(US$ m)16,799Harris Corporation (HRS)Looking for Continued Momentum into the Dealpriceisfor12priceisfor12ResearchAnalystsRobertSpingarn212 5381895 HYPERLINK mailto:robert.spingarn JoseCaiado212 3256771 HYPERLINK mailto:jose.caiado AudreyPreston212 3252709 HYPERLINK mailto

57、:audrey.preston ScottDeuschle212 3256116 HYPERLINK mailto:scott.deuschle Share priceperformance1 851 601 351 10A p r- 18l -18O ct- 18Jan - 19HRS.NS& P 5 0 0IN D EXOn 18-Jan-2019 the S&P 500 INDEX closed at 2670.71 Daily Jan22, 2018 - Jan18, 2019, 01/22/18 = US$143.19Quarterly EPSQ1Q2Q3Q42018A1.371.6

58、51.67 1.782019E1.781.892.03 2.172020E2.022.202.32 2.55Numbers to Look For: Were looking for Q2 revenue of $1.63B (+6.0% Y/Y), with overall Y/Y growth slowing vs Q1, largely as Communication Systems growth slows from the torrid Q1 pace (+15.5% Y/Y) as the comp toughens and HMS radio production ramps

59、more in the second half of the fiscal year. Margins should remain strong in Q2, which we model at 22% company-wide, with early dilution from production ramps on HMS radios being offset by continued efficiency efforts and beneficial operating leverage elsewhere in the portfolio. This should lead to E

60、PS of $1.89 (+14% Y/Y), as well as a return to more robust FCF generation (we model $284M) after a seasonally weak Q1. We see some room for a guidance uptick for the year, as HRS typically introduces a conservative initial guide (and we note that HRS raised full year guidance last year in FQ218), th