Shares of Ducommun Inc. spiked last week as investors pushed the Carson aerospace and defense manufacturing business back to level analysts said was in keeping with its true value.
Ducommun stock rose 7.8 percent last week to close at $27.79 on Dec. 18, placing it among the top gainers on the LABJ Stock Index. (See page 38.)
Analysts said this spike was in line with their expectations as the company’s stock had been undervalued.
The rise comes after a fall sell-off prompted by a heavy debt load and uncertainty over government spending. The company had been trading near its 52-week high of $30.91 when it reported lower than expected third quarter earnings Oct. 28. The news sent its shares down 20 percent to $24.86 on Oct. 31.
However, analysts said the company might have been oversold.
“We think the company is worth more than where it’s trading. Maybe others are just starting to agree with us,” said Michael Crawford, an analyst at West L.A. firm B. Riley & Co.
He said based on a longer-term defense budget forecast, defense spending will likely bottom out in 2014 and start to escalate over the next five to 10 years.
In a note he issued after the October earnings report, Crawford pointed out that Ducommun’s financials have been improving as it amended and loosened certain debt agreement limits.
At the same time, the company’s commercial and military aircraft product lines have seen strong growth. With business booming for its top client, Boeing Co., Ducommun is expected to see continued demand for its commercial aircraft products.
In addition, its acquisition of LaBarge Technologies in 2011 has helped Ducommun secure more orders for both defense and commercial aerospace electronics components.
The company announced last week that Chief Operating Officer Joel H. Benkie will succeed Anthony J. Reardon as president, a change that was to take effect Jan. 1. Reardon will continue as chairman and chief executive of the company, while Benkie will retain the responsibility of chief operating officer.
Reardon said in a statement that Benkie’s promotion was instrumental at a time when the company was preparing for greater revenue growth.
“He is a solid operational guy,” said Crawford, who agreed it was good news for the company.
“We maintain our buy rating and the $33.50 price target,” he said in the note, adding that the target was a conservative estimate.
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