Does anyone have experience in analyzing or valuing companies in the aerospace / defense industry? What are some of the things to keep in mind, anything in particular from an accounting / valuation standpoint? I would assume companies in this sector are somewhat dependent on government funding, how does that factor in? Any special KPIs you would look at?
I did search the forum but very limited info.
Thanks in advance!
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Anyone?
keywords:
revenue recognition for multi year contracts EBITA based valuation Amortization of acquired intangibles pensions
Other: Commercial / defence exposure / cyclicality Contracts at risk (sequestration and other) aftermarket component
Google is your friend.
http://worldwide.erau.edu/caal/aaaims/Rob-Spingarn.pdf
http://www.nbaa.org/news/2014/Bizjet_monthly_April_2014.pdf
Thanks LDNBNKR and pttp07!
Need Help Valuing an Aerospace/Defense Stock (Originally Posted: 10/25/2011)
Hi guys,
I have to value a large, aerospace/defense company for a class and need help figuring out the best way to go about projections. This company is mostly run through government revenues and defense spending is a big revenue driver, but knowing this, how can I translate it into projections 5-10 years out? Another contingency is whether or not they even receive contracts. If they don't get a contract, no revenue, but their 10-k doesn't really have information about current contracts and when they expire (my guess is that there's just too damn many to list out like that).
That's the biggest challenge I am facing (projecting 5+ years out), and yes, I know that's an analyst's biggest challenge, but as a beginner with few resources, how should I go about researching and making projections? Does anyone know a good site for finding information about government spending on defense by any chance?
I don't want you guys to do this for me obviously since that eliminates the purpose of this exercise completely, but if you can give me tips on where to start looking for info or if anyone knows what the industry standard for valuing defense companies is, I'd greatly appreciate it. I just need a push in the right direction.
There isn't really a set way to make forecasts. From what i've seen, every analyst makes up their own framework for estimating future earnings.
The other hard part in valuation is estimating beta to discount your cashflows. Theres a lot of debate as to how you should do it and again, a lot of people have their own way of calculating it.
The DOD puts out a good amount of commentary about their spending priorities and plans that are packaged with their budget request. If you can fit the company into one of their spending segments you can see where it falls as a priority for the military.
Thanks for the responses guys! Today, one of my comparables reported and said that they expect 2012 to be pretty flat, so it may be wise to take that into account as well. Could one way of making projections be finding historically how revenues have coincided with government defense spending (i.e. revenue as a % of gov spending) and using that to make projections or would that be a fairly flawed methodology?
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