美国航空航天与国防：力量平衡

1、Aerospace and DefenseBalance of Power - January 2019North America Equity Research18 January 2019We present our monthly Balance of Power stock rankings and trade ideas below. We also outline a few estimate changes in our defense coverage ahead of the upcoming Q4 earnings period. The Balance of Power

2、ranking chart is in Table 4.Washington remains a problem for Defense stocks. DoD is shut and believe the budget will be dramatically different than so not much has changed for company operations or our estimates; nevertheless, Washington is not doing Defense stocks any favors. partial shutdown highl

3、ights potential for suboptimal outcomes that no one truly wants, which is a sobering thought, given the need to surmount the FY20-21 sequestration caps. Moreover, shutdown will delay the DoD budget from 4 to sometime TBD. We wouldnt make too much this though. Congress never likely to finalize Approp

4、riations before Sept at least and regardless of what DoD requests, the final outcome depends administration congressional leaders compromising on questions: 1) how big will deficit be and 2) what is the ratio of Defense spending tonon-Defense?Valuations more attractive but metrics look better others

5、. Picking a bottom for Defense has been a dangerous game since the group began de-rating in April 2018 but valuations on 2020 EPS and unadjusted / EBITDA are nearing levels implying either 1) an imminent budget downturn the need for meaningful downward revisions and think neither is a case. Investor

6、s also use pension-adjusted metrics, on which LMT, RTN, and HII look more expensive, though its important to give credit the net after-tax pension cash these companies will receive. It is not surprising that these adjustments figure more prominently as valuation becomes a bigger part of the Defense

7、investment case vs fundamentals or momentum but with no agreed standard readily available “adjusted consensus”, the valuation case tougher. In Table 1 we lay out valuation our numbers for a range ofmetrics.LMT ranked high for earnings Our Q4 EPS $4.65 is high and should have a strong 2019, particula

8、r upside potential both sales and margins in RMS, following up 2018 goodness in this segment. Lockheed has consistently exceeded forecasts and we now model segment EBIT that is $300 mn (5%) the trend information released with 3Q18 earnings. (See estimate changes.) Of course, strong numbers did help

9、much in 2018 and the chief risks into Q4, believe, are negative group sentiment that leads some to fade a good quarter, and the potential that investors are already positioned for strongresults.Aerospace & Defense Seth M. Seifman, CFA AC (1-212) 622-5597 HYPERLINK mailto:seth.m.seifman seth.m.seifma

10、nBloomberg JPMA SEIFMAN J.P. Morgan Securities LLCBenjamin E Arnstein, CFA(1-212) 622-6548 HYPERLINK mailto:benjamin.e.arnstein benjamin.e.arnsteinJ.P. Morgan Securities LLCMichael S Rednor, CFA(1-212) 622-1110 HYPERLINK mailto:michael.s.rednor michael.s.rednorJ.P. Morgan Securities LLCAnirvan Bordo

11、loi(91-22) 6157-3053 HYPERLINK mailto:anirvan.bordoloi anirvan.bordoloiJ.P. Morgan India PrivateLimitedEquity Ratings and Price TargetsCompanyTickerMkt Cap ($ bn)Price ($) Rat Curing PrevCur Price TaEnd Daterget PrevEnd DateGeneral Dynamics Corp.GD US49.55165.72UWn/c193.00Dec-19n/cn/cHuntington Inga

12、lls IndustriesHII US8.73197.12Nn/c230.00Dec-19n/cn/cLockheed MartinLMT US79.93278.80Nn/c312.00Dec-19n/cn/cNorthrop GrummanNOC US46.19264.08OWn/c318.00Dec-19n/cn/cRaytheonRTN US46.57162.84Nn/c202.00Dec-19n/cn/cSource: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 1

13、7 Jan 19.See page 20 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could aff

14、ect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. HYPERLINK / We rank BA as well. earnings will highlight more company-specific developments at Boeing, and are confident on this front, 737 deliveries up to 51 in Dec

15、 from 20/mo earlier in and the cash ops guide looking achievable at $15.0-15.5 bn. We expect an initial guide in the $14.0-14.5 range, our $15 bn, but we assume wants to start 2019 more conservatively in light of development risk (777X) and production ramp risk MAX). We rank SPR in the middle our li

16、st. stock has rallied 15% since announcing its deal with Boeing on Dec 27 6% the market) and view this as the main relief rally near term, as assume that estimates will not materially higher the back the deal. The agreement provides $100 mn annual 787 cash relief in 2019-20 but see potential higher

17、capex as well as a working capital headwind in 2019. The current FCF estimate for 2019 is 7.7% of sales, near the midpoint of mgmts 7-9% target range and we think 8% is a likely startingpoint.Poor sentiment and big questions on HII lead us to rank it high. Preliminary pension adjustments in Q3 the t

18、umbling and the pension cash profile in the out-years will now be a area investors. Pension cash is FCF in 2019 and we assumewith little visibilitythat it falls to near-zero over 5yrs, so the pace of this decline is top of mind. The market will also focus on the financial impact the recently negotia

19、ted two-carrier This should positive but the $4bn in cost saves the press has reported could a challenge for Newport News margins vs prior expectations ($2.5bn). We think sentiment is weak, however, and expectations with the trading defense peers on most metrics and so we take a risk into earnings a

20、nd rank high.Feeling OK on bizjets into earnings, despite Embraer miss. Macro worries are a concern about bizjets but Ascend a stronger than expected Q4 Gulfstream (GD) and in-line deliveries at Cessna (TXT). With regard to demand momentum, which is most important, we do not see either GD or TXT cha

21、nging tone dramatically. More quantitatively, it will be hard either OEM to backlog, given elevated deliveries and so will evaluate the results in that context. (We estimate 44 deliveries at Gulfstream and 59 at Cessna.) beyond earnings, will seek to gauge the implications of Embraers delivery miss

22、and lackluster 2019 guidance for overall demand. We gauge that sentiment is negative GD and TXT this which is why we rank them in the top and middle our list, respectively, despite bizjet risk. Bombardier wont report until mid-Feb and think delivering Q4 numbers and addressing 2020 financing require

23、ments are the most important issuesCrunch time at ARNC. As wrote recently ( HYPERLINK /research/content/GPS-2881319-0 here) base-case is that and Apollo reach a deal to privatize, with Elliott rolling its stake into the new entity while taking ownership the Grenfell-fire-exposed BCS business. Withou

24、t a takeout, Arconic the next leg of the narrowbody engine transition, and will need to guide investors on 2019, which could mean a reset vs. consensus est. $1.56 EPS ($1.52 JPM). a $21-22/sh takeout price according to recent press reports (10% upside) and the potential to drop to the mid-teens with

25、 no deal, the risk/reward favors staying on thesidelines.We performed in-line last period. Our weighted picks gained 0.5% in Dec/Jan compared to an unweighted average up 0.4%. Our top three ARNC/NOC/SPR returned -0.5%/2.5%/3.6% respectively with our bottom picks TXT declining 5%, TDG up 1.5% and KAM

26、N up nearly10%.Estimate ChangesRaising LMT estimates modestly. We are boosting our segment EBIT estimates Lockheed after performance YTD that should into 2019. Lockheed has consistently outperformed our segment ops estimates $150-200 mn each quarter in 2018. Looking to 2019, guidance calls for just$

27、150 mn of y/y improvement despite strong growth in MFC and Aeronautics and so we assume $300 mn.NOC cash coming down a touch in 2019. We are reducing our FCF estimates modestly, $100 mn in 2019, to better reflect Orbital working capital benefit in 2018 that presents a headwind in cash bridge (See Ta

28、ble 1.) We could see a conservative guide out the gate new CEO Kathy Warden.Modifying GD estimates for Q4 deliveries, more GDIT caution 2019. With an extra G650 and G550s, the 44 deliveries Ascend are three above our prior estimate 41. This adds $20mn in EBIT into 4Q, modest other tweaks to our mode

29、l including lower Marine growth. Our 4Q is up to $3.04 and our FY18 est. is $11.20. We made small changes to our 2019 segment growth forecasts, most notably taking growth down 1% in Marineand2% in GDIT, offset by higher EBIT at Gulfstream off a higher 2018 base. Net- net, 2019 EPS is down 10c to $12

30、.15 but this is still above the consensus, which is down 10c since the start of Dec.Discount rates and asset returns will weigh on FAS/CAS adjustments. Since we last heard from our defense companies at 3Q18 earnings, estimate that discount rates have fallen 15bp while pension asset returns are down

31、1- 2%. These present modest headwinds to the non-cash FAS/CAS adjustment in 2019 and can find them in Table 2. Northrop moved to pension accounting in early December and gave updated guidance at that time and so our calculations for the company are between Dec 10th andyear-end.3Table 1: Defense Co.

32、Valuation Metrics2019E2020E2021EFCF/shGD13.8x12.5x11.3xHII11.6x11.7x10.8xLMT13.1x13.2x12.2xNOC16.4x12.8x11.3xRTN14.2x12.0 x10.8xAverage13.8x12.4x11.3xFCF/sh ex Pension2019E2020E2021EGD13.8x12.5x11.3xHII16.0 x14.6x12.6xLMT19.7x19.1x14.0 xNOC20.3x14.6x12.7xRTN23.1x18.0 x14.7xHRS/L315.5x12.3x10.7xAvera

33、ge18.1x15.2x12.7xGAAP EPS2019E2020E2021EGD13.5x12.2x10.9xHII11.8x11.4x11.5xLMT13.9x10.8x10.1xNOC13.4x11.5x10.4xRTN13.4x11.7x10.7xAverage13.6x11.6x10.5xPAEPS2019E2020E2021EGD13.5x12.2x10.9xHII16.0 x14.5x13.2xLMT17.3x15.8x14.6xNOC19.2x15.9x14.1xRTN16.4x14.8x13.2xHRS/L315.5x13.2x11.9xAverage16.6x14.7x1

34、3.2xSource: J.P. Morgan estimates, Bloomberg. Note: PAEPS is Pension Adjusted EPS.Table 2: Northrop FCF Bridge2018E2019E2018E FCF$2,675Pre-taxItemsSegmentEBIT$3,470$3,979$509Pension$660$670$10Total Pre-tax$4,130$4,649$519After-tax$3,304$3,719$415WC and CapexOrbital Working Capital($200)Capex($1,086)

35、($1,200)($114)Total WC and Capex($314)Build$2,776Published 2019E Est$2,772Source: J.P. Morgan estimates.Table 3: Pension FAS Adjustments2019FASratesLMTratesLMT($1,065)($80)($32)($112)($1,177)($0.31)NOC$500($14)($25)($39)$461($0.18)RTN($1,150)($48)($38)($86)($1,236)($0.25)HII($73)($15)($10)($24)($97)

36、($0.46) based on discount based onTotal asset returnUpdatedEPSImpact FASSource: J.P. Morgan estimates.5Balance of Power ExplainedThe total number of points in our coverage universe is 100 times the number of stocks. Our intent with the Balance of Power is to communicate nuance, such as conviction le

37、vel and the impact of near-term catalysts.Table 4: J.P. Morgan Aerospace/Defense Balance of Power Rankings (Prices as of January 17, 2019)CompanySymbolRatingPointsPriceNotesLast BoPDeltaLockheed MartinLMTN140$278.00We expect a strong Q4 with positive operating revisions likely10040BoeingBAOW135$359.

38、09Expect strong Q4 cash flow, satisfactory 2019 guide10530Huntington IngallsHIIN130$197.12Q4 could help clarify cash flow outlook100General DynamicsGDUW125$165.72With sentiment weak, we could see guide reducing risk8540Northrop GrummanNOCOW120$264.08We think cash flow headwinds understood by now130-

39、10Spirit AeroSystemsSPRN115$78.03Recent outperformance and appropriate 2019 expectations put125-10SPR in the middle of our listTransDigmTDGUW110$349.05Will not report until Feb, but ESL deal could close soon-ish7040TextronTXTOW105$48.62We think expectations are low7530Triumph GroupTGIN100$13.69Inves

40、tor expectations appear well calibrated for Q3955RaytheonRTNN95$162.84Expect little change to outlook post Q4 earnings905Mercury SystemsMRCYOW90$48.34Our expectations are in line8010HarrisHRSOW85$138.65With focus on deal, earnings looks like a less important catalyst115-30L3 TechnologiesLLLOW80$178.

41、00With focus on deal, earnings looks like a less important catalyst110-30KratosKTOSN75$14.15Removing some points after strong performance; may not report120-45Q4 until late FebBombardierBBD/BOW70C$2.08Next catalysts likely earnings and addressing 2020 debt100-30ArconicARNCN65$20.18Risk/reward moving

42、 to downside as stock prices in deal135-70Kaman CorpKAMNN60$58.96Not clear foreign fuze sale has moved forward65-5Total1,700Source: J.P. Morganestimates,Bloomberg.Note: These point allocations reflect our short-term views. For our long-term outlooks and ratings, please see the investment thesis sect

43、ion of our latest company research, which can be found on HYPERLINK / .6Figure 1: Last BoP Total Return (12/7/18 1/17/19)BAKAMNKTOS SPRNOCBAKAMNKTOS SPRNOCTDGAero/Def S&P 500MRCYGD LLL HRS ARNCRTNLMTTXT BBD/BGISource: Bloomberg.7Table 5: Upcoming Catalyst CalendarCurrent BoPJanUTXQ4JanTXT Q429-JanLM

44、TQ429-JanHRS Q2 + LLLQ4JanMRCY Q2JanBA Q4JanGD Q4JanNOC Q431-JanRTN Q4 (Est)1-FebHON Q4Next BoPFebTDG Q1(Est)FebSPR Q4 (Est)FebTGI Q4(Est)14-FebBBD/B Q414-FebHII Q4(Est)February?FY20 Defense BudgetRequestLate FebKAMN Q4(Est)Late FebKTOS Q4(Est)Source: Company reports, Bloomberg, and J.P. Morgan esti

45、mates.8Seth M. Seifman, CFA (1-212) 622-5597 HYPERLINK mailto:seth.m.seifman seth.m.seifmanNorth America Equity Research18 January 2019J.P. Morgan Aerospace/Defense Comp Sheet (Prices as of January 17, 2019)Valuation MetricsCompanyPriceSymbolRatingSharesOutMarketCapCY18EEPSCY19E CY20ECY18EP/ECY19ECY

46、20EEV/EBITDACY19E CY20EEV/SalesCY20EP/FCFCY19E CY20EPriceTargetAerospace/IntegratedArconic$20.18ARNCN502.410.11.3415.0 x13.3x11.2x7.0 x6.4x1.1x1.0 x24.4x15.2x$229%Boeing$359.09BAOW580.8208.615.2523.6x19.2x16.7x13.3x12.3x2.1x1.9x13.4x12.8x$40011%BombardierC$ 2.09BBD/B CTOW26312.5x16.2x5.7x8.2x5.1x0.7

47、x0.5x28.1x6.6x$5.00139%Kaman Corp$58.96KAMNUW523.1x15.5x14.5x9.9x9.9x1.0 x0.9x12.8x18.0 x$590%Spirit AeroSystems$78.03SPRN412.5x10.5x8.9x8.0 x7.0 x1.3x1.1x12.1x10.4x$9015%Textron$48.62TXTOW249.412.13.2015.2x14.3x11.9x9.2x8.6x1.0 x1.0 x15.1x12.4x$5819%TransDigm$349.05TDGUW55.619.415.5722.4x20.7x18.8x

48、14.7x13.8x7.6x6.8x20.7x19.1x$40015%Triumph Group$13.69TGIN36.8x8.1x6.8x10.0 x12.1x0.7x0.6xNM9.2x$2046%Average/Total:$265.016.4x14.7x11.8x10.0 x9.4x1.9x1.7x16.4x13.0 xDefenseGeneral Dynamics$165.72GDUW299.049.611.2014.8x13.6x12.4x11.1x10.5x1.7x1.5x13.9x12.6x$19316%Harris Corporation$138.65HRSOW120.61

49、6.77.1219.5x16.9x15.4x14.3x13.4x3.2x2.8x14.6x14.1x$18533%Huntington Ingalls$197.12HIIN44.38.719.0510.3x12.2x11.8x9.6x9.7x1.2x1.1x11.6x11.7x$23017%Kratos$14.15KTOSN072.1x48.4x36.9x23.3x19.7x2.5x2.0 x57.8x37.6x$1613%L3 Technologies$178.00LLLN79.414.110.3017.3x16.0 x14.8x11.1x10.4x1.7x1.5x13.3x12.4x$23

50、532%Lockheed Martin$278.80LMTN286.779.917.7015.7x14.0 x11.0 x10.2x8.5x1.7x1.6x13.7x13.5x$31212%Mercury Systems$48.34MRCYOW730.8x25.0 x23.0 x16.6x14.8x4.4x3.5x31.3x29.1x$528%Northrop Grumman$264.08NOCOW174.946.219.4513.6x13.4x11.6x12.3x11.2x1.9x1.6x16.4x12.9x$31820%Raytheon$162.84RTNN286.046.610.1516

51、.0 x13.9x11.8x9.0 x8.6x1.8x1.6x14.3x12.1x$20224%Average/Total:$265.615.3x14.3x12.7x11.1x10.3x1.9x1.7x14.0 x12.7xS&P 500 (Consensus)$2,635.96SPX146.6218.0 x15.6x14.0 xA & D discount/(premium)12%7%13%Other Financial MetricsCompanyJPMFY1 EPSConsensusFY1 EPSJPMFY2 EPSConsensusFY2 EPSFCF (per share)CY19E

52、Sales (bn)CY18E CY19E CY20EOperating MarginCY20EDividendYieldPayoutRatio 19MarketCapNet DebtEVNet Debt /19 EBITDAYTDReturnAerospace/IntegratedArconic1.521.581.801.870.831.339.9%10.3%10.8%1.1%15.2%10.14.714.92.2x20%Boeing18.7518.4121.5021.4926.8228.0811.6%12.8%13.3%2.3%43.8%208.61.9210.40.1x11%Bombar

53、diera80.240.070.325.7%5.3%8.2%0.0%0.0%4.16.810.95.1x3%Kaman Corp3.803.624.053.844.593.281.94.6%4.6%4.6%1.4%21.1%1.3x5%Spirit AeroSystems7.407.448.808.326.437.517.211.8%12.9%13.0%0.6%6.5%1.2x8%Textron3.403.494.104.063.213.927.8%8.0%8.4%0.2%2.3%12.12.614.71.6x6%TransDigm16.4516.5718.2018.8416.8418.253

54、.943.7%44.8%46.0%0.0%0.0%19.410.529.95.2x3%Triumph Group1.751.761.752.06(1.02)1.493.4NM0.3%4.2%1.2%9.5%7.0 x19%Average/Total:160.8170.5180.613.6%12.4%13.6%0.8%12.3%11%DefenseGeneral Dynamics12.1512.0113.4013.2911.9213.1612.3%12.4%12.5%2.2%30.6%49.6x6%Harris Corporation7.857.918.609.049.509.826.417.2

55、%17.5%17.7%2.0%33.3%16.73.720.42.6x3%Huntington Ingalls16.2015.7516.7016.0216.9316.848.112.4%10.1%9.6%1.7%21.2%8.71.09.71.0 x4%Kratos0.290.300.380.400.240.380.64.4%4.4%5.4%0.0%0.0%1.5x0%L3 Technologies11.1511.6012.0513.0913.3914.3610.8%12.0%12.2%1.8%28.7%14.12.816.91.8x2%Lockheed Martin19.8519.5825.

56、2524.3020.3820.7213.8%13.8%16.3%3.2%44.3%79.913.893.81.5x6%Mercury Systems1.771.672.001.921.541.660.69.5%11.7%12.1%0.0%0.0%1.1x2%Northrop Grumman19.7519.2122.8522.1816.1020.5212.6%11.2%12.0%1.7%22.3%46.212.758.82.6x8%Raytheon11.7511.8213.7513.5711.3713.4716.9%16.8%16.5%2.1%29.5%46.63.049.60.5x6%Aver

57、age/Total:173.1186.1196.612.2%12.2%12.7%1.6%23.3%6%S&P 5002.2%5%Pension AdjustmentsCompanyPension Adjusted EPS (PAEPS)CY18ECY19ECY20EEBITDAP (bn)CY18E CY19E CY20ECY18EEV/EBITDAPCY19ECY20EPension Adj FCFCY20EP/PAFCFCY19E CY20EPensionNPVHuntington Ingalls Lockheed Martin Northrop GrummanRaytheon0.96.8

58、4.03.7Notes: J.P. Morgan ratings: OW = Overweight; N = Neutral; UW = Underweight; NR = Not Rated. Price targets for Dec 31, 2019. TGI FY ends in March; HRS and MRCY end June; T DG ends Sept. MRCY and KTOS not included in avg valuations.BBD stock price in C$ converted based on current exchange rate t

59、o calculate ratios. All EPScalculations consistent Bloomberg consensus. Sources: Bloomberg, company reports, andJ.P. Morgan estimates.9General Dynamics Corp.UnderweightGeneral Dynamics Corp. (GD;GD US)CompanyDataPrice($)165.72FYE Dec2016A2017A2018E(Prev)2018E(Curr)2019E(Prev)2019E(Curr)2020E(Prev)20

60、20E(Curr)DateOfPrice17 JanEPS Reported ($)52-weekRange($)Q1 (Mar)2.342.482.65A2.65A2.632.65-143.87Q2 (Jun)2.442.452.62A2.62A2.962.90-Market Cap($mn)Q3 (Sep)2.482.522.89A2.89A3.083.07-FiscalYearEndQ4 (Dec)2.622.103.013.043.583.53-SharesO/S (mn)299FY9.879.5611.1711.2012.2512.1513.6013.40PriceTarget($)