Rockwell Collins, Inc. (COL) recently reported a solid first quarter in which earnings per share beat the Zacks Consensus Estimate by 10%. Management also raised its guidance for 2011, prompting analysts to revise their estimates higher.
Rockwell generates strong free cash flow and has been using that cash to buy back its stock. It is a Zacks #2 Rank (Buy) stock.
Company Description
Rockwell Collins, Inc. provides aviation electronics and airborne and mobile communication products for commercial and military applications.
Its revenues are divided as follows:
Government Systems: 59%
Commercial Systems: 41%
It is headquartered in Cedar Rapids, Iowa and has a market cap of $10.2 billion.
First Quarter Results
Rockwell reported its results for the first quarter of 2011 on January 20. Earnings per share came in at 96 cents, beating the Zacks Consensus Estimate by 9 cents.
Revenues were up 8% year-over-year driven by a 12% increase in commercial systems. Sales in the government systems division were up 6%.
The overall operating margin (operating income/total sales) came in at 19.4%, down slightly from 19.7% in the same quarter last year.
The operating margin in its government systems division is higher than the commercial systems division. The government systems segment reported an operating margin of 28.5% in Q1 compared to 18.3% for the commercial systems division.
Meanwhile, earnings before taxes increased 7%, while earnings per share were up 26% due in large part to a lower tax rate.
Guidance Raised
Management raised its guidance for 2011 EPS following the solid quarter. The company now expects to earn between $3.85 and $4.05 per share, up from previous guidance of $3.75 to $3.95.
Analysts revised their estimates higher too. The Zacks Consensus Estimate for 2011 is now slightly above guidance at $4.06. This represents 15% earnings per share growth over 2010. The 2012 estimate is currently $4.59, corresponding to 13% annual growth.
It is a Zacks #2 Rank (Buy) stock.
Returning Value to Shareholders
Rockwell projects that it will generate between $500 million and $600 million in free cash flow in 2011. The company has been using its strong cash flow to return value to shareholders.
Rockwell spent $143 million in the first quarter repurchasing 2.5 million shares. Approximately $182 million remains authorized for repurchase under its current program.
The company also pays a dividend that yields 1.5%. It hasn’t raised it since 2008 however.
Shares trade at 15.8x forward earnings, a discount to the peer group multiple of 16.9x.
Its return on equity of 39.1% trumps the industry average of 9.5%. This justifies its higher price to book multiple (6.7 vs 2.0).
Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.
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