A Potential Rebound Play in B/E Aerospace

Shares in B/E Aerospace (NASDAQ: BEAV) were hammered in the fourth quarter of 2014 after the company announced they would spin off its consumer management segment into a new company called KLX (NASDAQ: KLXI).  The beat-down continued following their third quarter earnings announcement despite some very good numbers and very positive forward guidance. 

In that conference call, they raised their guidance for the remainder of 2014 by 10 cents per share, expecting $4.45 per diluted share.  That's a 25% increase over the previous year.  They forecast double digit earnings and revenue growth for 2014, and also forecast double digit earnings and revenue growth for 2015.  The drubbing their shares took at the time does not match the economic health and growth potential of the company.

Since mid-October, the price of their shares has improved in fits and starts.  They are trading in an upward channel and have now broken through some resistance at $59.50.  In the short term, they have the potential to test resistance at $64, and depending on their results and guidance released in their January 28th 4th quarter earnings call, they have the potential to retest $70. 

The outlook for the company is certainly optimistic.  We heard from Alcoa yesterday that aerospace production is expected to grow in 2015.  Regardless of which aircraft manufacturer gets those new orders, B/E stands to benefit.  B/E Aerospace sells the interior components of both commercial and business jets, providing the bulkheads, seats, and even the coffee makers that are installed in aircraft large and small.  While Boeing and Airbus battle for the large aircraft manufacturing orders, B/E rides the strength of that market by selling their wares to either company. 

Looking at the irrational reaction to their October release, there is certainly some risk to being long in this stock on January 28th.  Protecting a long position with protective puts would be a wise choice if you want to hold over that announcement as we've seen that, even with good earnings, good revenue, and improved forward guidance, this stock can still be punished.  In the medium to long term, though, B/E Aerospace appears poised to capitalize on strong growth in the Aerospace industry through 2015.

BEAV Daily Chart