High fuel prices haven’t just hurt consumers, trucking companies and airlines.
Shipping and freight companies like YRC Worldwide (YRCW), FedEx (FDX) and AMR Corp. (AMR) are also feeling the pain at the pump. In fact, companies in both industries are now paying as much as two and even three times as much as they did for fuel just a year ago, while not being able to raise their prices fast enough to offset soaring fuel costs (see also, “FedEx Corp (FDX): Still on Time“).
Further on down the food chain, others are under siege too.
B/E Aerospace (BEAV), the world’s leading manufacturer of cabin interior products for commercial passenger and business jets, has seen its shares plummet 50% this year as analysts worried that high fuel prices will cause airlines to cut back on replacing older, heavier seats to save some cash. Analysts also worried that soaring gas prices would further hurt BEAV by leading to a loss of crucial orders from one of the world’s largest airlines, Boeing (BA) (see also, “Embattled Boeing (BA): A Perfect Buy”).
Down… But Not Out
Once again, all the analysts got it wrong. See, replacing those heavy seats with newer, lighter ones helps airlines increase their fuel economy and improve their cash flow. That’s why BEAV recently announced better-than-expected Q1 results and expects Q2 results to top expectations, as well.
Not to mention, BEAV’s acquisition of Honeywell International’s (HON) fasteners and hardware division was just given the go-ahead by government regulators. The deal gives B/E Aerospace the 30-year contract to become the exclusive licensee for the sales of Honeywell’s proprietary fasteners, seals, gaskets and electrical components in Honeywell engines, cockpit electronics, wheels and brakes.
With Airbus and Boeing expected to deliver 1,150 wide-body aircraft between now and 2011, B/E is looking at not only become a leader in the not-so-friendly skies, but a cushiony 16% annual growth rate.
Therefore, distribution will not only become B/E Aerospace’s main moneymaker, but will help the company position itself as the one of the biggest manufacturers in the friendly skies (see also, “Bargain Hunters Descend on Airline Stocks“).
B/E Aerospace had record backlog at the end of Q1, 25% higher than it did a year ago, but strong bookings encompass all of the company’s business segments.
Sometimes I think analysts like to cry wolf in the interest of doing something. As a Rational Investor, you should be thankful for the opportunity to buy quality companies on the cheap.
The smart money has quietly built its holdings on the same stocks Richard Band has been buying at Profitable Investing for years! Like Jamie, Richard Band thinks airline stocks will rebound once gas prices come down. To learn which other stocks Richard has in his Profitable Investing portfolio, sign up now for your risk-free trial subscription! Richard Band’s recommendations for conservative investors have grown 900% since 1984!
