(By Balachander) LMI Aerospace Inc. (NASDAQ:LMIA) shares were upgraded to "Buy" from "Hold" by Deutsche Bank analyst Myles Walton, who views the stock's recent underperformance as a compelling valuation opportunity.
With about 70 percent of sales to commercial aerospace, Walton sees LMI as one of the best-positioned "below the radar" names to benefit from an increase in OEM sales.
"While recent [and largely timing-related] execution issues certainly warrant some discount, we now believe the gap has become too wide and expect a narrowing as large aircraft production rates increase and execution continues to improve following a good 1Q," the analyst wrote in a note.
St. Charles, Missouri-based LMI offers design engineering services, structural assemblies, kits, and components to the aerospace and defense markets.
"With what we view as a good degree of conservatism in '12 guidance, and troubled programs/start-up costs moving behind the company, there is hope building that '12 is a trouble-free year for LMIA, which we believe should help the company make some progress in closing its valuation gap with peers," Walton said.
The analyst, who has a price target of $24 on the stock, continues to see room for upside to guidance, on an improved outlook for Engineering Services, lower program losses (777), some potential for increased 737 content yet-to-be-awarded, and further recovery of extra costs incurred in 2H11.
The stock, which has been trading in the 52-week range of $14.97 to $25.00, added 3.21 percent to trade at $16.73 on Thursday.