AvWorks Rising Volume Positioned To Outperform Boeing, Lockheed

Submitted by David Gould through our Trefis contributor tool

Since I first wrote my bullish piece on Boeing (BA) here, the aerospace and defense firm has gained by 18.9%, beating the S&P 500 by nearly 600 basis points. I then argued in favor of Lockheed Martin (LMT), which has now gained by 20.5%. As attractive as these returns are, they pale in comparison to those that can be yielded from competitors that are not limited by the “law of big numbers”.

AvWorks Aviation (SPLI) is my next pick in the sector. With the stock trading near its 52-week low, it is, in my view, poised for triple-digit gains similar to those experienced in the past. The last time it bounced from the lows, it realized a staggering ~300% gain. Volumes have dramatically increased as investor confidence has grown over the fundamentals. By the end of trading activity on Friday, the stock rose by 12.3% and it is well positioned to continue to grow given the several catalysts at hand.

The firm is a GSA certified government contractor and its client base includes top firms, such as Boeing, L-3 Communications, Woodward HRT, Flightstar, Moog, and Mid America Aerospace, among several others. Towards strengthening its business relationships, AvWorks recently announced that it is under negotiations to acquire hydraulic flight components for servicing Boeing’s 737 Classic Series.

According to the company’s CEO, Joel Young, “This lot of flight control components increases our fast-growing inventory and gives the Company an exciting opportunity to open new business channels with major end users including cargo and commercial airlines, and FBOs”.

This represents just one in a series of favorable announcements that have driven investor interest. Late in January, the company announced that it completed the Lear Jet 24 reclamation project, which marks the second time that it has successfully employed Precision Aircraft Dismantling’s proprietary eco-friendly salvage solution. This will help drive momentum in later quarters as it solidifies business relationships with the Lauderdale Executive Airport while enhancing its “green” brand that will become increasingly valuable with greater environmental regulations.

Soon after, AvWorks announced that it was setting up a strategical alliance with a Florida-based specialized air cargo firm. By vertically integrating the business, management has improved its pricing power and has expanded margins. The Southeast Florida location is adjacent to two international airports and will help drive sustainable streams of free cash flow going forward.

The aerospace and defense market may hit $1.2 trillion by 2014 and with AvWorks increasing scale across the globe, it is well positioned to outperform its peers. Rational markets have already priced in much of this potential into the market cap of Boeing and Lockheed, but AvWorks is just starting to catch on and will soon have its value gap closed. Investors that get in early will benefit from subsequent news that confirms the solid fundamentals of this rising company.

Boeing is estimates to grow earnings per share at a CAGR of 7.3% over the next three years. Assuming that AvWorks can penetrate just a twenty thousandth of the expected market, it has solid room for more than tripling in value.

DISCLOSURE: The distributor of this research report, Gould Partners, is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence as information contained within this report has been derived from public sources and cannot be guaranteed by us to be fully accurate. We are a consultant to a third-party EAG, representing AvWorks Aviation and have received one thousand dollars for independent research. Always discuss investments with a licensed professional before making any financial decision. Statements made herein are often “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.