PCP (NYSE)

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Precision Castparts Corp.

• PCP (NYSE)
• Aerospace Defense
• Lead Analyst David Motemaden
• Associate Analyst Jimmy Regan
• Jon Benzimra
• Dan Brein
• Steve Jackson
• Roger Stewart

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Team Recommendation Buy

• Our one year target price is 122.81
• Appropriate purchase price (rationale) lt 98
• Top 3 reasons to purchase
• Exposure to aerospace industry with minimal risk
• Operating Efficiency
• Strong Fundamentals

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Company Description

• Precision Castparts Corporation manufactures
  metal products and parts for aerospace,
  automotive, and general industries.
• Precision Castparts operates in three main
  segments Investment Cast Products, Forged
  Products, and Fastener Products.
• Precision Castparts was founded in 1949, and
  operates mainly in the United States (based in
  Portland, Oregon) and in the United Kingdom.

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Business Units/Segments

• Precision Castparts Corporation is a collection
  of three major segments
• Investment Cast Products
• The Investment Cast Products segment produces the
  world's largest diameter stainless steel,
  nickel-based superalloy, and titanium components
  stationary vanes and rotating blades for
  high-performance turbine engines small steel and
  titanium parts and aluminum castings for
  aerospace and other applications.
• Forged Products
• The Forged Products segment includes Wyman-Gordon
  Forgings titanium, nickel-based, and steel alloy
  components for aerospace, industrial gas
  turbines, and general industrial markets, as well
  as extruded, seamless pipe for energy markets,
  and Special Metals Corporation, offering the
  largest range of nickel alloys and product forms
  to aerospace and other industries
• Fastener Products
• The Fastener Products segment manufactures high
  quality specialty fasteners, assemblies and
  precision components for critical applications
  worldwide. The segment supplies technically
  sophisticated components and materials vital to
  key end user markets such as aerospace,
  transportation, power generation, racing, farm
  and construction equipment, and industrial
  machinery.

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Revenue Breakdown
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Sales by End Market
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Company Strategy

• Overall, Precision Castparts focuses itself on
  discovering opportunities for top-and-bottom line
  growth. Their strategy centers on
• Preeminent leadership in the market it serves
• A high degree of proprietary technology and
  technical expertise in its product lines
• Outstanding management of its complex
  manufacturing processes
• Close attention to the creation of shareholder
  value

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Exposure to Aerospace with Minimal Risk

• Precision Castparts is a safe haven play on an
  otherwise uncertain sub-industry
• Solid management with superior track record in a
  down cycle
• 2001 ROIC of 23.62 , ROE of 14.91
• Financial security to capitalize on market
  turmoil
• Aerospace Industry Outlook is Two-Faced
• Pros
• High level of aircraft orders backlogs
• Planned deliveries stretching out to 2014 for
  some models
• Expanding aircraft fleet sizes in developing
  regions
• Cons
• Expected slow in domestic orders during 2008
• High oil prices

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Exposure to Aerospace with Minimal Risk

• Aerospace Defense companies risks include
• International competition
• Crippled defense budget growth
• Precision Castparts offers hedged benefits
• Aging air force fleet requires repairs
• Maintenance, repair and overhaul (MRO) industry
  has seen noticeable benefits from a rise in air
  travel
• Expected aerospace fastener gains
• Boeings 787 is PCPs highest content program
• Supply components on a build-to-print basis
• Not a tier one supplier, doesnt face ongoing RD
  expenses or payment delays
• Shipments should ramp in 2009 ? 2012 based on
  conservative estimates

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End Market Exposure

• Fastener Products
• Sales expected to grow from increased sales
  volume, market share gains, and extended content
  from qualification of new fastener part families
  within the aerospace market
• Segment will also benefit from a full year of
  operations from Cherry (acquired 2003)
• Investment Cast Products
• Sales expected to continue to benefit from
  increased demand from commercial aerospace
  customers and renewed strength in the power
  generation market
• Segment is in the process of expanding
  manufacturing capacity over the next 12 months
• Forged Products
• Future sales growth expected to moderate as SMC
  increases the quantity of alloys it provides
  internally to the Companys forging operations
• Segment will benefit from
• McWilliams and Caledonian acquisitions
• Continuing strength in the commercial aerospace
  and power generation markets
• SMCs market share gains in non-aerospace
  markets.

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Operating Efficiency

• Margin growth expected to continue
• Continuing productivity gains
• High-value capacity increases
• Isothermal, Single Crystal Blades, IGT
• Significant market share in most of its markets
  gives PCP pricing power over its products
• Internal nickel buys via SMC (from 35 of total
  to 80 over time)

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Operating Efficiency

• Acquisition Strategy
• Complement strong organic growth with a
  disciplined acquisition strategy
• Strong track record of improving performance of
  acquired companies
• Wyman Gordon, SPS, SMC most recent successful
  integrations
• Many believe there will be another acquisition in
  6-12 months

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Strong Fundamentals

• Margins
• EBITDA margins at least 380bps higher than
  closest competitor
• Profit Margins are best among competitors and are
  expected to grow
• Returns
• ROA, ROE, ROIC
• Free Cash Flow
• Low Debt (D/E lt 0.20)
• CAGRs

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Competitive Landscape

• Spirit Air Systems (Market Cap 3.04B)
• World's largest independent supplier of large
  component parts and assemblies for commercial
  aircraft. Also operates in military and general
  aviation.
• Hexcel (Market Cap 1.82B )
• Develops, manufactures, and markets advanced
  composites for use in the commercial aerospace,
  space and defense, and industrial applications.
• Goodrich (Market Cap 7.38B )
• Supplies components, systems, and services to the
  commercial and general aviation airplane markets,
  as well as to the defense and space markets
  worldwide.
• Alcoa (Market Cap 30.21B)
• Manages the technology, mining, refining,
  smelting, fabricating, and recycling of aluminum
  and resulting finished products

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Comparables 1
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Comparables 2
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Ratios 1
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Ratios 2
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Five Year Summary
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CAGRS
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Projections
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Discounted Cash Flow
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Correlation
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Threats/Concerns

• Potential slowdown in aerospace industry
• Possible failures to integrate new acquisitions
• Volatility in material prices

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Current Events

• March 18, 2008 Precision Castparts CEO Mark
  Donegan presented an overview of business
  operations at the JPMorgan Aviation
  Transportation Conference
• February 22, 2008 CEO Mark Donegan sold 18,000
  shares of common stock at 115.52 a share.
• January 22, 2008 Precision Castparts announces
  that their 2008 third quarter profit jumped by
  55 percent as a result of improved operating
  efficiency across all major business segments

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Stock Chart
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Strong Earnings History
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Team Recommendation Buy

• Our one year target price is 122.81
• Appropriate purchase price (rationale) lt 98
• Top 3 reasons to purchase
• Exposure to aerospace industry with minimal risk
• Operating Efficiency
• Strong Fundamentals

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Questions?