It's not all that often that you see the staid New York Stock Exchange stocks taking double-digit plunges, but today, one of those stepping up for a Street spanking is defense contractor UnitedIndustrial Corporation (NYSE:UIC). With a market cap of less than $1 billion, United is no Boeing (NYSE:BA), General Dynamics (NYSE:GD), Northrop Grumman (NYSE:NOC), or Lockheed Martin (NYSE:LMT), although IUC's test systems are used to maintain and evaluate systems produced by many of those peers.
To get to the numbers, today's $0.69-per-share earnings figure is being widely reported as a "drop" from last year's $0.84, but knocking away last year's $0.29-per-share gain from a property sale, the EPS figure actually looks like an increase of 25%. That lagged the 28% revenue increase just slightly -- much of it owed to increased revenues from lower-margin logistic support revenues.
The stock's problems look like they're due to the age-old Wall Street sin of failing to meet expectations, which were for $0.74 per share. But then, with only a handful of estimates and a wide range among them, is it really fair to say that a nickel's miss did the dirty work? Stocks that make the quick climb are the ones that take the steepest falls. That's the real story today.
This stock has been a favorite of a lucky few over the past year, having more than doubled over the past year -- at least until today's 18% beatdown. Much of that is because it appears to be in two of the right places at the right time. Its defense products, including "Shadow 200" unmanned aircraft systems, as well as test and simulation gear, have been hot. That segment is responsible for more than 90% of United's revenues.
Meanwhile, United still hangs on to its combustion equipment business, though that is still subject to ye olde "strategic options" treatment (i.e., it's for sale). This outfit, Detroit Stoker, makes equipment for burning biomass and refuse fuels. (It actually turned in a respectable 21% revenues increase for the quarter, with operating income increasing to $1.7 million from $0.1 million.)
But the Shadow is still the headline product and the metric the Street is watching as it bids this contractor toward the big leagues. As for the future of the stock, one glance at cash earnings ought to convince you that the Street is not valuing this thing by discounted cash flows. I don't know whether the recent share price is built on price-to-earnings or "revenues-to-ZIP code."
The hot story here continues to be the contracts for the Shadow (production and support), and investors getting into this stock are going to be hitching their fortunes to the sentiment there. If the unmanned-plane biz continue to soar, it might work out. If the future orders expected to come out of congressional military spending are grounded, or just come in lighter than anticipated, this stock will likely have a pretty rough landing.
At the time of publication, Seth Jayson had no positions in any company mentioned here. View his stock holdings and Fool profile here. Fool rules are here.
