3. Ducommun Incorporated (NYSE:DCO)
Average Price Target Upside as of August 15: 21.37%
Forward P/E as of August 15: 20
Ducommun Incorporated (NYSE:DCO) is an international manufacturing and engineering services company that develops innovative electronics and structural solutions with applications in aerospace, defense, and industrial markets. The company operates through two main segments, namely Electronics Systems and Structural Systems. It sells its products to commercial customers including aircraft manufacturers and government agencies such as NASA.
The competitive advantage of Ducommun Incorporated (NYSE:DCO) stems from its years of experience in the business. The company stands as one of the oldest companies in California with over 175 years of experience in the aerospace and defense market. Looking at the past 5 years, Ducommun Incorporated (NYSE:DCO) has been able to grow its revenue by 2.77% and net income by 2.61%, indicating robust foundations.
During the most recent quarter, the Q2 of 2024, Ducommun Incorporated outperformed analyst expectations and posted robust growth. The revenue of the company grew 5.2% year-over-year to reach $197 million beating analyst expectations by 1.1%. Non-GAAP earnings per share were $0.83, ahead of market consensus by 36.6%. Revenue growth was backed by strong performance in the Commercial Aerospace and Military segments. The quarter also marked the fourth consecutive quarter with revenue exceeding $190 million indicating a robust and sustained demand for its products.
In addition to revenue growth, the company was also able to grow its backlog to $1.07 billion, a 5.7% increase year-over-year. Indicating successful upcoming quarters. The margins of Ducommun Incorporated (NYSE:DCO) also increased with EBITDA margins at 15.2%, up from 13.9% last year and gross margins at 26%, increasing 4.3% year-over-year.
DCO has experienced a slowdown in MAX build rates, however, it is well-positioned to take advantage as soon as the build rates ramp back up. Management believes if Boeing reaches a production rate of 38 MAX aircraft by the end of 2024, as per their recent communications, it will provide a major boost to DCO’s performance
DCO is cheap at current levels, it is trading at 20 times its forward earnings while the sector average sits at 22%. Moreover, its earnings are expected to grow by 34% during the year to reach $0.94. 4 analysts have a strong buy rating on the stock, with their median price target of $76 presenting an upside of 21.37% from current levels.
Cove Street Small Cap Value Fund stated the following regarding Ducommun Incorporated (NYSE:DCO) in its first quarter 2024 investor letter:
“We sold our position in Ducommun Incorporated (NYSE:DCO) this quarter. We like the aerospace and defense world and think the company has a solid conceptual runway to participate in niche programs on both sides of the industry. But we have concluded we just cannot stomach the management team, which refuses to recognize quaint ideas like “value creation PER SHARE,” the generation of free cashflow vs. a focus on revenue growth, and the idea that shareholders are partners that deserve transparent financials with which to judge performance and progress.”
