Magellan Aerospace is a buy, Paradigm Capital says

Following the company’s second quarter results, Paradigm Capital analyst J. Marvin Wolff is maintaining his “Buy” rating on Magellan Aerspace Corp. (TSX:MAL).

On Wednesday, Magellan reported its Q2, 2018 results. The company earned $23.46-million on revenue of $241.2-million, a topline that was down 4.3 per cent over the same period last year.

Wolff says the notable aspects of the quarter included margins returning to normal, the company’s balance sheet remaining healthy, a new contract with Hamilton Sunstrand Corporation for magnesium and aluminum castings, and a macro environment that will see continued production from Airbus and Boeing.

“The strong demand for commercial aircraft through 2020 is producing a very solid increase in OEM production rates,” the analyst says. “Magellan is poised to benefit directly from these increases and to grow its EPS substantially. With the strong underlying growth in production and deliveries, using our target multiple of 13x, applied to our 2019 EPS forecast of $1.72 results in our $22.00 target price. We maintain our Buy recommendation, but caution the stock could mark time over the next two quarters.”

Wolff’s price target of $22.00 implied a return of 40 per cent at the time of publication, including dividend.

The analyst thinks Magellan will post EBITDA of $149-million on revenue of $960-million in fiscal 2018. He expects those numbers will improve to EBITDA of $181-million on topline of $1.07-billion the following year.