Rohr Stock Gain Believed Tied to Jetliner Demand
Rohr Industries and securities analysts who follow the company’s stock on Wednesday played down rumors that Rohr was “in play” as a potential takeover target.
Rather, Rohr stock’s recent high trading volume and increased stock price were a reflection that institutional investors were recognizing the “fundamental” improvements in Rohr’s earnings and revenue, analysts said Wednesday.
Rohr stock closed up 50 cents Wednesday at $32.50 per share on volume of 288,600 shares traded after gaining $1.875 on Tuesday. Rohr’s average daily volume has been 90,000 shares. Rohr stock has been steadily gaining since bottoming at $12.75 after the Oct. 19 stock market crash and has “spurted” to its current level from about $26 three weeks ago, Rohr spokesman Gerald F. Broening said.
Interest in Rohr was spurred by an article in the June 20 issue of Business Week that said Rockwell International and General Electric may be looking at Rohr as a possible takeover candidate. Broening declined to comment directly on the article.
But Jim Vail, an analyst with Eberstadt Fleming in New York, said a possible takeover by General Electric, a jet engine contractor and customer of Rohr’s, is “nonsense.” Such a takeover would cause Rohr to lose business from GE competitors such as Rolls-Royce and Pratt & Whitney that are now good Rohr customers, Vail said.
Takeover rumors are nothing new for Rohr, a Chula Vista-based manufacturer of casings and supports for commercial jetliner engines. Both Boeing and Florida investor Paul Bilzerian reportedly considered making runs at Rohr last summer, and Bilzerian is said to have amassed a block of Rohr shares. Reports of their interest caused Rohr’s stock price to plateau at $39 per a last summer.
But this time, analysts say Rohr’s financial performance is at the heart of the stock price increase. “The activity in the stock is based on real expectations about Rohr’s share of the burgeoning commercial aerospace market,” Broening said.
The cyclical commercial aircraft industry is now at a high point, with an unprecedented level of orders being turned in by commercial carriers for jetliners from mainframe manufacturers, including Boeing, Airbus and McDonnell Douglas, each of whom uses Rohr components.
In the past month alone, International Lease Finance ordered 130 commercial jets from Airbus and Boeing, and American Airlines and United Airlines ordered a combined total of at least 80 Boeing 757s. In addition, SAS this month ordered 61 commercial aircraft from McDonnell Douglas, Broening said.
After several years of investment in expansion and design, Rohr is poised to cash in as jetliners are delivered, according to Richard Rieger, an aerospace analyst with Ladenburg, Thalmann & Co. of New York. Rohr’s stock increase, he believes, is due to a “dramatic accumulation” of Rohr shares by institutional investors in recognition of those prospects.
‘Turned the Corner’
“The company has just about turned the corner from the engineering stage to the manufacturing stage. There will be accelerated deliveries of jetliners over the next several years,” Rieger said.
A good omen was an increase in Rohr’s gross margin to 7% for the third quarter ended May 1, up from 6% the previous quarter, Vail said, calling it a “major change in the direction of (Rohr’s) profitability.”
Rohr’s earnings, margins and revenues are all expected to show marked improvement in the fiscal year ending July 31 and continuing through 1989, Vail said. Revenues for the soon-to-close fiscal year are expected to exceed $900 million, up from $663 million last year, analysts have said.
Earnings for 1988 may reach $2 per share, up from $1.53 last year. Rohr earnings could hit $3 per share in 1989, Vail predicted.
Rohr’s backlog is at $1.7 billion, up from $1.5 billion a year ago, Over the past year, Rohr has increased it payroll to 10,500 from 8,000 and its plant space to 6 million square feet from 5 million square feet, Broening said.
