This Aircraft Outfitter May Weather The Storms

The way airlines are headed these days, investing in any related stocks seems like buying a one-way ticket to nowhere. All the big carriers -- Delta (DAL ), United (UALAQ ), American (AMR ), US Airways (UAIR ) -- will probably post huge losses this year. Still, that doesn't mean carriers can neglect sprucing up cabins or keeping equipment up to date. Upgrades to interiors -- seats, food-and-beverage preparation gear, and oxygen-delivery systems -- is the specialty of B/E Aerospace (BEAV ).

A Sharp Updraft
"Airlines, if they want to be competitive, can only put off retrofitting and refurbishment for so long," says Alex Gould of Criterion Research Group. He says there's pent-up demand for B/E's services. If so, the Wellington (Fla.) company could see an earnings rebound. It last earned a profit in 2001: $20 million, on revenues of $666 million. This year's second-quarter sales of $185 million, however, represent year-over-year growth of 22%. Net losses narrowed to $2.4 million, or 6 cents per share, compared with 39 cents last year. Gould says the stock, now at 11, could hit 17 in 6 to 12 months. Adam Weiner of Credit Suisse First Boston (CSR ) cautions that the volatility of oil poses serious risks, particularly with B/E's highly leveraged balance sheet. Nonetheless, he recently increased his 2005 earnings estimate from 30 cents a share to 40 cents -- and foresees 80 cents in 2006, based on sales growth of 10% and a 16% increase in operating income.

Gene Marcial will be back next week.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Mara Der Hovanesian

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