Magellan Aerospace is a buy, says Paradigm

Strong demand for commercial aircraft is leading to an increase in OEM production rates that is benefiting Magellan Aerospace (Magellan Aerospace Stock Quote, Chart, News: TSX:MAL), says Paradigm Capital analyst J. Marvin Wolff.

On Monday, Magellan Aerospace reported its Q3, 2014 results. The company earned $13.03-million on revenue of $202.5-million, a figure that was up 11.9% over the $181.0-million topline the company posted in last year’s third quarter.

“The strength of the commercial aircraft market is holding,” said the company in a press release announcing the results. “Boeing and Airbus maintain their positions that future demand for these aircraft is real”.

Wolff says Magellan is set to benefit from this strength in the industry, and to “grow its EPS substantially”. The analyst says he believes the company can, in fact, accommodate growth and also make an accretive acquisition. He says the Magellan’s flexibility is not just due to external factors, but to internal changes it has made to become more efficient. He notes that the company’s decade-long efforts to streamline operations has resulted in an improvement in gross margins from 9.9% to 16.7%.

In a research update to clients this morning, Wolff maintained his “Buy” rating and $16.00 one-year target on Magellan Aerospace, implying a return of 16% at the time of publication, including the company’s dividend.

Founded in 1996, Mississauga-based Magellan Aerospace is a manufacturer of aerospace systems and components. The company builds critical components in engine, fuselage and landing gear for military and commercial aircraft for clients such as Boeing and Bombardier.