Future acquisition pushes Rockwell Collins Inc. higher

Exchange: NYSE

Sector: Industrial Goods

Industry: Aerospace/Defense Products & Services

Entry strategy

Price: $140—$142

Stop-loss: under $135.2

Take profit: minimal aim — $148, then $157.5

Investment horizon: 1 quarter to 1 year

Company details

Rockwell Collins, Inc. is the world’s largest manufacturer of communication systems and specialized equipment for the aviation industry. The company sells cabin management systems, communication channels for aircraft, geophysical sensors, surveillance and flight control systems and other products and services.

The corporation was founded in 1933 in the USA in the state of Iowa. The target audience of Rockwell Collins is the private and public sectors (the US and other countries’ Departments of Defense, the US Federal Aviation Administration and so on).

The issuer’s capitalization is more than $23 billion (group +Large).

Company financial performance

On July, 27, 2018, Rockwell Collins, Inc., published its financial report for the second quarter of 2018. Analysts had expected from Rockwell Collins, Inc. higher financial results. Nevertheless, the quarter turned out to be quite successful for the company. The Corporation showed an increase in sales of 5.7% and a gain in earnings per share of 48.2% (see Table 1).

Table 1. Financial results of Rockwell Collins Inc. ($COL) from Q2 2017 to Q2 2018. Source: MarketWatch — Open original image

    In August and September of this year the corporation received a number of large contracts with US military departments, including

  • for the production and supply of AN/ARC-210 radio equipment for a total of $ 288.5 million,
  • to provide engineering services for E-2D Hawkeye Integrated Training Systems worth $ 32.8 million.

These transactions will have a positive impact on Rockwell Collins’s cash flow.

On September, 14, CEO of United Technologies Corp. ($UTX) confirmed its intention to acquire Rockwell Collins, Inc. by the end of the month. The deal was to be held in July, so the market was waiting for confirmation of the plans. After the release of this news $COL shares have updated historical highs — investors have put in prices the possible synergistic effect from the forthcoming deal.

#background United Technologies is a larger player in the Aerospace/Defense Products & Services market than Rockwell Collins

In mid-September 2018, most of the shares in the Aerospace/Defense Products & Services sector — and the Industrial Goods sector as a whole — have shown strength, outpacing the main US indices. This is an additional factor in favor of implementing this investment idea.

Technical analysis (trading plan)

Graph 1. Technical analysis of Rockwell Collins, Inc. ($COL). Source: TradingView — Open original image

Published on the 19th of September, 2018