Rohr Looks As If It's Ready To Do Just That

Rohr Industries, the largest independent maker of structural assemblies for commercial and military jet engines, had a dismal 1990--mainly because of the plunge in the airline business and costly disputes over government contracts. Even so, Rohr's stock has been in an upswing, climbing 31%, from 16 on Jan. 2 to 21 on Apr. 16. And some pros say Rohr's big advance has just begun.

What's the scoop? Rohr Industries, whose major customers include the likes of Boeing, McDonnell Douglas, Airbus Industrie, and Rolls-Royce, "is a very undervalued company that's on the verge of a smart turnaround," says Art Micheletti, an investment manager at Bailard, Biehl & Kaiser in San Mateo, Calif. Rohr makes components, mainly nacelles (pods that shelter the engine) and pylons, which attach the engine to the frame.

Based on earnings projections, Micheletti figures that Rohr could climb to $ 45 a share in the next 12 months. He and several other big players have been buying shares in anticipation of a sharp earnings recovery starting this year, including a big bounce in pretax operating margins. Margins, which had hit 11.5% in 1986, slumped to as low as 2.9% by 1990 but rebounded to some 7% in the fiscal quarter that ended on Jan. 31, 1991.

FIRMING UP. Earnings are displaying similar firming signs. Micheletti figures that Rohr will post earnings of $1.50 a share in the year ending July 31, 1991, and $3 in fiscal 1992, vs. a barely breakeven year in fiscal 1990.

Bailard Biehl analyst Brett Berry notes that order backlogs have been strong. He estimates that they will hit $2.6 billion this year, vs. last year's $1.7 billion. And he projects a sales rise to $1.25 billion in fiscal 1991, up from $1 billion last year. Rohr's operating cash flow is also turning positive. That, says Berry, will enable the company to pare down long-term debt of $561 million. He figures that debt service is currently eating up about $2 a share in earnings.

Rohr's stock could get an additional upward kick, says one big investor. He believes the company's solid position in the business has prompted several companies to take a look. This pro thinks that at least one of the aerospace giants will take a sizable stake in Rohr. A company spokesperson says there have been a lot of rumors, "but we don't comment" on them.

Before it's here, it's on the Bloomberg Terminal.