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Rockwell Collins (COL) Downgraded to 'Perform' by Oppenheimer on Valuation

 November 29, 2012 10:35 AM

(By Balachander) Rockwell Collins Inc. (NYSE: COL) shares were downgraded to "perform" from "outperform" by Oppenheimer & Co. Inc., citing valuation.

The brokerage, which also removed its price target of $58 on the stock, said the valuation reflects more fairly COL's risk-reward ratio moving forward.

"Looking out a bit, there's much to like about COL, particularly in its commercial transport business, where a string of new platform introductions offers the prospect of sustained double-digit growth starting in 2014," the brokerage said.

"Still, we'd rather buy COL when valuation and estimates reflect more reserve with regard to this potential and give more weight to the possibility of near- to medium-term program delays and macro pressures," Oppenheimer wrote in a note.

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In COL's business jet segment, Oppenheimer wrote, the picture looks mixed. The good: COL has several new platforms layering in over the next few years, including the Legacy 450/500, the Learjet 85, and the Global 7000/8000. The bad: these gains may be substantially neutralized by headwinds at Cessna and the loss (to bankruptcy) of Hawker.

Oppenheimer said upside to its commercial revenue estimates could arguably result from better than expected global growth or a resurgence in global business, which could boost commercial transport aftermarket and business jet OE sales. "But this eventuality can be more efficiently exploited, in our view, through stocks such as BEAV."

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The brokerage said risk appears balanced on the defense side of the business.

"On the upside, FY '13 could potentially end up slightly better than COL's guidance, which assumed a full year of sequestration. On the downside, any D.C. deal overturning sequestration likely extends the slow bleed into 2014 and potentially beyond," Oppenheimer wrote.

Rockwell Collins provides defense electronics and communications, avionics, and cabin electronics to military and commercial aviation OEMs, owners, and operators worldwide.

Shares shed 1.72 percent to trade at $55.56 on Thursday. Over the past year, the stock has been trading between $46.37 and $61.46.

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