2013_04_01 Aerospace & Defence JPM

8/10/2019 2013_04_01 Aerospace & Defence JPM

1/11www.jpmorganmarkets.c

North America Equity Researc01 April 2013

Aerospace and DefenseBalance of Power - April 2013

Aerospace & Defense

Joseph B. Nadol IIIAC

(1-212) 622-6548

[email protected]

J.P. Morgan Securities LLC

Seth M. Seifman, CFA

(1-212) 622-5597

[email protected]


Christopher Sands

(1-212) 622-9224

[email protected]


Shailendra K Jain

(91-22) 6157-3325

[email protected]

J.P. Morgan India Private Limited

See page 8 for analyst certification and important disclosures, including non-US analyst disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that tfirm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factormaking their investment decision.

Bloomberg JPMA NADOL

We are updating the allocation of points in our Balance of Power short-termoutlook. We summarize our thoughts below:

Boeing remains our top large cap pick. The stock outperformed the market by 4%in Q1, including a strong March, yet we see further upside. The stock still trades atonly 11.8x our pension-adjusted EPS estimate for 2014, or less than one turn above

NOC, which derives most of its earnings from US defense, and we still have notfactored much of the sequester into our estimates. The FAA seems likely to certifyBoeings 787 battery fix this month, setting the stage for the resumption of revenueservice and deliveries. The company will report Q1 on April 24 and while cash flowshould be weak due to the lack of 787 deliveries and sequestration could pressuredefense estimates, we anticipate little change to our outlook for the commercialaircraft cycle to remain on the upswing and for cash flow to rise significantly over

the next 1-2 years.

Defense regained some ground in March, but April could be more challenging.Following a year in which large cap defense returned 17.5% and outperformed theS&P 500 by 150 bps, the group has underperformed by ~650 bps YTD. However,the underperformance in the first two months of the year was a more significant~950 bps before a modest rally last month. We attribute last month's performance in

part to short covering following the onset of sequestration and a bit of catch-up in arising market. President Obama has also been reaching out to Republicans and hasreportedly been offering entitlement reform in return for tax increases. It is difficultto be optimistic about the likelihood of a bipartisan agreement given the rancor ofthe past few years, but such an agreement would likely be a big positive for defenseand we could envision some investors taking a shot that these efforts might succeed.However, we believe that the defense stocks could give some of last month's

performance back this month since consensus expectations are likely to decline inconjunction with Q1 earnings as companies revise their guidance to reflectsequestration. At an average of 10.5x 2014 PAEPS, defense valuations are at thehigh end of their range of the last 4-5 years.

Aftermarket progress should come slowly. We expect aftermarket sales to growmodestly y/y following a Q4 in which sales were flat on average for a group of USand European companies we track. We are modeling gradually accelerating growththrough 2013, but this recovery will likely be less powerful than in the past, in part

because airlines are using more new deliveries to replace older planes, a conditionthat could persist as long as fuel prices are high, interest rates are low, and globaleconomic growth is modest. Among the stocks, Pratt spares are a key to aftermarket

profits at UTX, and a tough comp should drive a Q1 decline vs annual guidance formid single digit growth although we also believe the market anticipates this andwe think UTX overall looks fine heading into the quarter. We estimate that TDGs

aftermarket sales have been flattish organically the past two quarters, and a weakfiscal Q2 is a risk given the contribution of high incremental margins on aftermarketsales to earnings growth. COL expects double digit aftermarket growth this FY,aided by mandates, and there should be a pickup in Q2 following the 6% decline inQ1 on a tough comp. We see slow but improving aftermarket growth at BEAV, forwhich widebody deliveries and SFE growth remain the key drivers.


2/11

2

North America Equity Research01 April 2013

Joseph B. Nadol III(1-212) [email protected]

Weak business jet fundamentals could create headwinds for TXT and GDthis month. We expect meaningful growth from the business jet operations ofTXT and GD in the coming years TXT due to a rebound in demand and GDfrom the ramp up of the G650 but market fundamentals are still weak and weexpect commentary on Q1 earnings releases this month to reflect this. We

believe demand has been rough to start the year. In addition, although the datais a few weeks away from being complete, Q1 deliveries for Cessna andGulfstream appear to be running below our forecasts. Beyond business jets, weanticipate that both TXT and GD will revise their defense guidance to reflectsequestration, and we rank TXT and GD toward the bottom of our large cap

pecking order this month.

WAIR risk/reward still looks attractive. We expect WAIR to report earningsin late April/early May. Fiscal Q2 should be solidly better than Q1 and thiscould drive outperformance since past earnings disappointments shoulddampen expectations. We estimate that organic sales growth fell to ~2% lastquarter, but even flat sales sequentiallywhich we would view as a

disappointmentwould result in an improvement in the organic growth rate to7-8% due to a much easier comp. In addition, we expect margins to expand offQ1 driven by a better mix and leverage on SG&A. We believe that some arelooking for margins to miss, and they have been under pressure, but we expectearnings to at least meet the guidance range this year even if margins remainweak due to the solid prospects for top line growth, particularly as the companyfurther penetrates several large customers. Owning WAIR into the quarter doescarry risk given the difficulties it has had on earnings days in the past, but thestock trades at only 10.6x our CY14 GAAP EPS estimate, which should

provide some downside protection.

M&A still looks likely for TDG soon. We are keeping TDG in our secondlarge cap slot due to the potential for the announcement of a large acquisitionthat would also likely be highly accretive. M&A is a key component of

TransDigms business plan and it has been over a year since managementclosed a sizable deal. The company has the capacity for a large acquisition, andrecent covenant changes as part of a major refinancing give management moreflexibility in several regards, including regarding divestitures from acquiredcompanies. We would expect the stock to react well to the announcement of atransaction, though we have our concerns about the longer-term sustainabilityof the multiple as the company gets bigger and M&A-driven growth becomesharder to generate. The other potential catalyst for TDG in the coming weeks isearnings, which we expect the first or second week of May. In the absence of adeal, we would be somewhat cautious into earnings. As noted above, while weexpect some improvement in aftermarket growth, it should remain less thanrobust and the sequester could dampen the outlook for defense aftermarketsales. Given the stocks premium valuation18.8x CY14 GAAP EPS vs justover 11x for our groupa quarter that does not drive estimates higher could

result in underperformance for the stock. FY14 DoD budget request expected this month. After a two-month delay,

President Obama is expected to submit his FY14 budget request to Congress onor about Apr 8. However, the actual FY14 budget will likely be materiallydifferent than this months request. For starters, all indications suggest that nextweeks request will ignore the impact of sequestration, which means thefunding levels in the request will be well in excess of the caps mandated bysequestration and therefore subject to reduction. Furthermore, the FY14 requestis expected to reflect the DoD strategy unveiled last year, but that strategy islikely to change as the DoD is currently undertaking another review under newSecretary Hagel to assess its strategy in light of the new budget environment.That review is due in late May and could also offer the first insights into


3/11



changes in procurement plans for major weapons systems as a result ofsequestration.

Please see the body of our note for all of our rankings, stock specificcomments, and an aerospace/defense catalyst calendar.


4/11

4



Balance of Power Explained

We have divided our coverage universe of 23 stocks into two categories. The largecap group contains 12 stocks with market caps generally over $6 billion, and thesmall/mid cap group contains 11 stocks generally under $6 billion. The total numberof points per group is 100 times the number of stocks. Our intent is to communicatenuance, such as level of conviction and the potential for near-term catalysts.

Table 1: J.P. Morgan Aerospace/Defense Balance of Power Rankings (Prices as of March 28, 2013)

Company Symbol Rating Points Change Price Notes

Large Cap

Boeing BA OW 150 $85.85 Valuat ion remains at tract ive; FAA could cert if y 787 bat tery fix

TransDigm TDG N 140 $152.92 See potential for M&A near term

Precision Castparts PCP OW 130 $189.62 Underperformed by 9% YTD

United Technologies UTX OW 115 $93.43 Q1 earnings should not disappoint

Rockwell Collins COL OW 105 +5 $63.12 Expect in line quarter with relatively low risk of est imates falling

Raytheon RTN N 100 +5 $58.79 Looks better posit ioned than mos t defense peers into the quarter

Lockheed Martin LMT N 95 -10 $96.52 Relative to peers, we see less risk to 2013 guidance due to sequestration

Bombardier BBD/B CT N 85 +20 C$ 3.96 Underperformed by 6%; could see more progress toward CSeries first flight

Northrop Grumman NOC UW 80 $70.15 Valuation continues to look rich

Textron TXT N 75 +15 $29.81 Weak Cessna demand and defense fundamentals could make for a tough quarter

General Dynamics GD OW 65 -20 $70.51 Q1 could be rocky on both the defense and business jet fronts

L-3 Communications LLL N 60 -15 $80.92Shorter-cycle defense businesses could drive greater downward EPS revision than is

likely for large cap peers Subtotal 1,200

Mid/Small Cap

Wesco Aircraft WAIR OW 155 $14.72 Expec t solid quarter; positive commentary on top line momentum

Alliant Techsystems ATK OW 135 $72.43 Quarter could be strong on commercial ammo sales

B/E Aerospace BEAV OW 125 +10 $60.28 Expect sol id quarter; potential catalysts include lav retrofi t order, M&A

Spirit AeroSystems SPR N 115 -10 $18.99 New CEO should be well received but development program overhang remains

Comtech CMTL OW 105 +10 $24.28 Valuation remains attractive

Huntington Ingalls HII N 95 -10 $53.33 We see few catalysts this month

Embraer ERJ UW 90 +10 $35.67Stock looks pricy, but next direction for it likely to be driven by he outcome of a

regional jet competition against Bombardier

SAIC SAI N 80 +20 $13.55 Dividend should provide near-term support

Exelis XLS N 75 -15 $10.89 Could see disappointing results from short-cycle businesses this quarter

Harris Corporation HRS UW 65 $46.34 We expect the quarter to reveal pressure across the business

CACI CACI N 60 -15 $57.87 We have low expectations into the quarter given recent peer resul ts

Subtotal 1,100

Total 2,300

Source: Bloomberg, J.P. Morgan.


5/11

5



Figure 1: Price Performance: 3/11/2013 - 3/28/2013

Source: Bloomberg.Note: The performance above covers the time period since the release of our last Balance of Power note.

CMTL

BBD

TXT

XLS

PCP

UTX

HRS

GD

ERJ

COL

JPM Aero/DefUniverse

SPR

LLL

RTN

HII

BA

TDG

NOC

BEAV

LMT

WAIR

CACIATK

SAI

-8% -4% 0% 4% 8% 12%


6/11

6



Table 2: J.P. Morgan Aerospace/Defense Catalyst Calendar

Current BoP

8-Apr FY14 Budget Request

9-11 Apr Aircraft Interiors Expo

17-Apr TXT Q1

19-Apr COL Q2

23-Apr LMT Q1 (est)

23-Apr NOC Q1 (est)

23-Apr BEAV Q1 (est)

24-Apr BA Q1

24-Apr GD Q1

24-Apr UTX Q1 (est)

25-Apr RTN Q1 (est)

25-Apr LLL Q1 (est)

30-Apr ERJ Q1 (est)

30-Apr WAIR Q2 (est)

30-Apr HRS Q3

2-May SPR Q1 (est)

2-May ATK Q4 (est)

2-May CACI Q3 (est)

3-May XLS Q1 (est)

Next BoP

7-May TDG Q2 (est)

9-May BBD/B Q1

9-May HII Q1 (est)16-May PCP Q4 (est)

21-22 May Boeing Investor Event

21-23 May EBACE

Source: J.P. Morgan.


7/11

7



J.P. Morgan Aerospace/Defense Comp Sheet (prices as of March 28, 2013)

Valuation Metrics

Market P/E P/PAE EV/EBITDA EV/EBITDAP EV/Sales P/FCF Price Implied

Company P ric e S ymbol Rating Cap (bln) 2 01 2E 2 01 3E 2 014 E 2 01 3E 2 01 4E 2 01 3E 2 01 4E 2 01 3E 2 014 E 2 01 3E 2 01 4E 2 01 3E 2 01 4E Target Ups ide

Alliant Techsystemsab

$72.47 ATK OW 2.4 9.1x 10.2x 10.5x 9.2x 9.5x 5.7x 5.6x 5.3x 5.2x 0.7x 0.7x 11.4x 9.1x $76.00 5%

B/E Aerospace $60.28 BEAV OW 6.2 21.3x 17.2x 13.7x 17.2x 13.7x 10.6x 8.5x 10.6x 8.5x 2.2x 1.9x NM 15.4x $57.00 -5%

Boeing $85.83 BA OW 65.6 16.8x 15.5x 14.4x 12.9x 11.8x 7.4x 6.5x 7.4x 6.5x 0.7x 0.6x 13.4x 8.4x $94.00 10%

Bombardierd

$3.96 BBD/B CT N 6.9 12.0x 13.6x 9.7x 13.6x 9.7x 8.2x 6.6x 8.2x 6.6x 0.6x 0.5x NM NM NA NA

CACI $57.87 CACI N 1.5 9.3x 9.1x 9.1x 9.1x 9.1x 5.9x 5.6x 5.9x 5.6x 0.5x 0.5x 6.5x 7.5x $60.00 4%Comtech

c$24.28 CMTL OW 0.4 20.8x 27.2x 14.8x NM 14.8x 5.0x 3.9x 5.0x 3.9x 0.8x 0.7x 18.3x 10.8x $29.00 19%

Embraer $35.67 ERJ UW 6.5 17.6x 12.7x 13.0x 12.7x 13.0x 6.9x 6.8x 6.9x 6.8x 1.0x 1.0x NM NM $32.00 -10%

Exelisa

$10.88 XLS N 2.1 5.9x 7.4x 7.1x 7.4x 8.0x 4.0x 3.6x 4.0x 3.9x 0.5x 0.5x 8.9x 7.8x $11.00 1%

General Dynamics $70.51 GD OW 25.0 NM 10.5x 10.7x 10.5x 10.7x 6.0x 5.9x 6.0x 5.9x 0.8x 0.8x 10.5x 10.7x $73.00 4%

Harris Corporation $46.34 HRS UW 5.2 8.9x 9.5x 10.3x 9.5x 10.3x 5.5x 5.7x 5.5x 5.7x 1.3x 1.2x 8.8x 9.0x $ 45.00 -3%

Huntington Ingallsa

$53.34 HII N 2.7 18.3x 13.5x 9.4x 10.5x 9.1x 5.7x 4.3x 5.0x 4.3x 0.5x 0.5x 17.5x 7.0x $50.00 -6%

L-3 Communications $80.92 LLL N 7.9 10.1x 9.9x 10.1x 9.9x 10.1x 7.0x 6.9x 7.0x 6.9x 0.8x 0.8x 7.2x 7.5x $80.00 -1%

Lockheed Martina

$96.52 LMT N 31.7 11.5x 11.0x 10.9x 9.8x 10.5x 6.6x 6.4x 6.1x 6.2x 0.8x 0.8x 9.0x 10.5x $92.00 -5%

Northrop Grummana

$70.16 NOC UW 17.8 9.0x 10.1x 9.5x 10.6x 11.0x 5.4x 5.2x 5.6x 5.8x 0.7x 0.7x 11.9x 8.7x $64.00 -9%

Precision Castpartsb

$189.73 PCP OW 27.8 20.5x 16.2x 14.2x 16.2x 14.2x 10.6x 9.0x 10.6x 9.0x 3.0x 2.7x 18.7x 16.6x $195.00 3%

Raytheona

$58.79 RTN N 19.6 10.4x 11.2x 11.0x 10.1x 10.3x 6.4x 6.1x 5.8x 5.8x 0.8x 0.8x 9.1x 10.1x $57.00 -3%

Rockwell Collins $63.12 COL OW 9.1 14.9x 13.1x 12.0x 13.1x 12.0x 8.7x 7.6x 8.7x 7.6x 2.0x 1.9x NM 12.8x $66.00 5%

SAICc

$13.55 SAI N 4.5 8.8x 11.5x 11.1x 11.5x 11.1x 6.4x 6.1x 6.4x 6.1x 0.5x 0.5x 9.0x 7.9x $12.00 -11%

Spirit AeroSystems $19.00 SPR N 2.7 NM 8.6x 6.7x 8.6x 6.7x 5.9x 4.9x 5.9x 4.9x 0.7x 0.6x NM 13.2x $22.00 16%

Textron $29.80 TXT N 8.8 15.1x 13.2x 11.5x 13.2x 11.5x 7.8x 6.6x 7.8x 6.6x 0.9x 0.8x NM 14.1x $30.00 1%

TransDigm $152.92 TDG N 8.3 27.9x 22.0x 18.8x NM 18.8x 13.4x 11.8x 13.4x 11.8x 6.2x 5.6x 17.0x 16.8x $130.00 -15%

United Technologies $93.42 UTX OW 84.7 17.5x 15.1x 13.1x 15.1x 13.1x 9.0x 7.7x 9.0x 7.7x 1.6x 1.4x 13.2x 11.5x $98.00 5%

Wesco Aircraft Holdingsc

$14.73 WAIR OW 1.4 16.1x 12.3x 10.6x 12.3x 10.6x 9.2x 8.1x 9.2x 8.1x 2.1x 1.9x 12.5x 14.9x $17.00 15%

Average/Total: $348.7 14.4x 1 3.1x 11.4x 11.6x 11.3x 7.3x 6.5x 7.2x 6.5x 1.3x 1.2x 11.9x 11.0x

S&P 500 (Consensus) $1,568.49 SPX 14.2x 12.7x 11.5x

A & D discount/(premium) -1% -3% 1%

Other Financial Metrics

EPS PAEPS FCF (per share) Sales (bln) Operating Margin Dividend Dividend / Market Net Debt /

Company 2 012 E 20 13 E 2 01 4E 2 01 3E 2 01 4E 2 01 3E 2 014 E 2 01 2E 2 01 3E 2 01 4E 2 01 2E 2 01 3E 2 014 E Yield '13 P AEP S Cap Net Debt EV ' 13 EBITDAP

Alliant Techsystemsab

$7.96 $7.11 $6.89 $7.91 $7.64 $6.37 $7.92 4.5 4.1 3.9 10.2% 9.8% 9.7% 1.4% 13.1% 2.4 0.7 3.1 1.3x

B/E Aerospace 2.83 3.50 4.40 3.50 4.40 2.50 3.91 3.1 3.4 3.9 17.5% 18.4% 19.5% 0.0% 0.0% 6.2 1.6 7.8 2.2x

Boeing 5.11 5.53 5.94 6.65 7.25 6.41 10.23 81.7 85.3 92.7 7.7% 7.5% 7.3% 2.3% 29.2% 65.6 (3.1) 62.4 (0.4x)

Bombardier 0.33 0.29 0.40 0.29 0.40 (0.43) (0.16) 16.8 18.2 20.8 4.1% 5.1% 5.6% 2.5% 34.2% 6.9 2.5 9.4 1.9x

CACI 6.22 6.37 6.38 6.37 6.38 8.85 7.75 3.7 3.7 3.6 7.6% 7 .7% 7.7% 0.0% 0.0% 1.5 0.7 2.2 2.0xComtech

c1.17 0.89 1.64 0.89 1.64 1.33 2.24 0.4 0.3 0.3 11.7% 10.6% 13.7% 4.5% 123.3% 0.4 (0.2) 0.3 (3.1x)

Embraer 2.03 2.80 2.75 2.80 2.75 1.12 1.46 6.2 6.3 6.6 10.1% 10.5% 9.7% 2.2% 28.6% 6.5 (0.1) 6.4 (0.1x)

Exelisa

1.85 1.47 1.53 1.47 1.37 1.22 1.40 5.5 4.9 4.6 10.2% 9.3% 10.4% 3.8% 28.1% 2.1 0.4 2.4 0.6x

General Dynamics (0.93) 6.70 6.60 6.70 6.60 6.68 6.58 31.5 31.9 30.5 2.6% 11.2% 11.4% 3.2% 33.4% 25.0 0.6 25.7 0.1x

Harris Corporationb

5.23 4.90 4.50 4.90 4.50 5.26 5.13 5.4 5.2 5.0 17.4% 17.4% 16.4% 3.2% 30.2% 5.2 1.6 6.8 1.4x

Huntington Ingallsa

2.91 3.95 5.70 5.06 5.86 3.05 7.62 6.7 6.7 6.8 5.3% 6.2% 8.2% 0.7% 7.9% 2.7 0.8 3.4 1.1x

L-3 Communications 8.00 8.15 8.00 8.15 8.00 11.26 10.78 13.1 12.6 12.2 10.3% 10.0% 9.9% 2.5% 24.5% 7.9 3.3 11.2 2.2x

Lockheed Martina

8.36 8.80 8.85 9.88 9.15 10.77 9.15 47.2 44.7 43.6 9.3% 9.6% 10.0% 4.8% 46.5% 31.7 4.4 36.1 0.8x

Northrop Grummana

7.81 6.95 7.35 6.62 6.37 5.89 8.09 25.2 23.8 22.8 12.4% 11.2% 11.7% 3.1% 33.2% 17.8 0.1 17.8 0.0x

Precision Castparts 9.26 11.69 13.32 11.69 13.32 10.16 11.40 7.9 10.1 10.9 25.8% 26.0% 27.3% 0.1% 1.0% 27.8 3.3 31.1 1.2x

Raytheona

5.65 5.25 5.35 5.82 5.68 6.43 5.81 24.4 23.6 22.9 12.2% 11.3% 11.6% 3.7% 37.8% 19.6 0.7 20.3 0.2x

Rockwell Collins 4.23 4.82 5.25 4.82 5.25 3.02 4.92 4.7 4.7 4.9 18.7% 19.5% 20.1% 1.9% 24.9% 9.1 0.8 9.9 0.7x

SAICc

1.54 1.18 1.22 1.18 1.22 1.50 1.72 11.2 10.2 9.5 6.6% 6.7% 7.3% 3.5% 40.8% 4.5 0.6 5.1 0.7x

Spirit AeroSystems 0.24 2.20 2.85 2.20 2.85 (0.36) 1.44 5.4 6.0 6.9 -1.0% 9.6% 9.7% 0.0% 0.0% 2.7 1.6 4.3 2.2x

Textron 1.97 2.25 2.60 2.25 2.60 1.17 2.12 12.2 12.6 13.4 8.0% 8.0% 8.5% 0.3% 3.5% 8.8 2.6 11.4 1.9x

TransDigmb

5.48 6.94 8.14 6.94 8.14 9.02 9.10 1.8 1.9 2.0 40.9% 43.1% 44.4% 0.0% 0.0% 8.3 3.3 11.6 3.7x

United Technologies 5.33 6.20 7.15 6.20 7.15 7.08 8.14 57.7 65.1 69.1 13.3% 14.4% 15.4% 2.3% 34.5% 84.7 18.4 103.1 1.6x

Wesco Aircraft Holdingsc

0.91 1.19 1.39 1.19 1.39 1.18 0.99 0.8 0.9 1.0 19.3% 21.3% 21.8% 0.0% 0.0% 1.4 0.6 2.0 2.7x

Average/Total: 377.2 386.5 398.0 12.2% 13.2% 13.8% 2.0% 25.0% 1.0x

S&P 500 110.53 123.45 136.70

Note: J.P. Morgan ratings: OW = Overweight; N = Neutral; UW = Underweight ; NR = Not rated. P rice targets are fo r Dec 31 '13. a. PAE PS excludes n et pension expense for BA (estimated) LMT, NOC, RTN, ATK , XLS and HII.

b. ATK, CACI, COL, HRS, PCP, TDG, and WAIR es timates are calen dar year; c. CMTL and SAI years are fr om Feb. to Jan. Esti mates are in U.S. Doll ars; d. BBD stock price converted fro m Canadian Dollars for multiple cal culations bas ed on current exch ange rat es.

Source: Bloomberg, Company reports, and J.P. Morgan estimates.


8/11

8



Companies Recommended in This Report (all prices in this report as of market close on 28 March 2013)Boeing Company (BA/$85.85/Overweight), TransDigm Group Inc (TDG/$152.92/Neutral)

Analyst Certification: The research analyst(s) denoted by an AC on the cover of this report certifies (or, where multiple researchanalysts are primarily responsible for this report, the research analyst denoted by an AC on the cover or within the documentindividually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the viewsexpressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part ofany of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or viewsexpressed by the research analyst(s) in this report.

Important Disclosures

Director: A senior employee, executive officer or director of JPMorgan Chase & Co. and/or J.P. Morgan is a director and/or officer ofBoeing Company.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Boeing Company,TransDigm Group Inc.

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investmentbanking clients: Boeing Company.

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the followingcompany(ies) as clients, and the services provided were non-investment-banking, securities-related: Boeing Company, TransDigm GroupInc.

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients,and the services provided were non-securities-related: Boeing Company, TransDigm Group Inc.

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation for investment banking BoeingCompany.

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment bankingservices in the next three months from Boeing Company.

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or servicesother than investment banking from Boeing Company, TransDigm Group Inc.

Company-Specific Disclosures: Important disclosures, including price charts, are available for compendium reports and all J.P. Morgancovered companies by visiting https://mm.jpmorgan.com/disclosures/company ,calling 1-800-477-0406, or [email protected] with your request. J.P. Morgans Strategy, Technical, and Quantitative Research teams mayscreen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477-0406 or [email protected] .

Date Rating Share Price($)

Price Target($)

28-Feb-07 N 87.26 --

01-Dec-08 N 39.88 46.00

08-Dec-08 N 39.53 42.00

12-Jan-09 N 43.74 44.00

02-Mar-09 N 29.51 36.00

19-Mar-09 N 33.19 34.00

04-May-09 N 42.18 40.00

16-Jul-09 N 42.05 37.00

08-Sep-09 N 49.50 41.00

24-Sep-09 N 52.37 50.00

22-Oct-09 N 51.07 47.00

11-Jan-10 N 60.87 56.00

28-Jan-10 N 61.93 62.00

29-Mar-10 N 72.59 80.00

07-Sep-10 N 64.64 89.00

20-Sep-10 N 63.72 82.00

21-Oct-10 N 71.50 80.00

0

30

60

90

120

150

180

Price($)

Oct

06

Jul

07

Apr

08

Jan

09

Oct

09

Jul

10

Apr

11

Jan

12

Oct

12

Boeing Company (BA, BA US) Price Chart

N $44N $40N $50N $62 N $80 OW $89OW $85

N $42N $34 N $41N $56 N $82 OW $81OW $80 OW $100

N N $46N $36N $37N $47 N $80 N $89OW $83OW $85OW $85 OW $80 OW $9

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Break in coverage Feb 28, 2007 - Dec 01, 2008.
https://mm.jpmorgan.com/disclosures/companyhttps://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]:[email protected]://mm.jpmorgan.com/disclosures/companymailto:[email protected]:[email protected]


9/11

9



03-Jan-11 OW 66.40 83.00

20-May-11 OW 77.52 85.00

09-Aug-11 OW 62.34 81.00

07-Sep-11 OW 64.90 89.00

18-Oct-11 OW 63.47 85.00

27-Oct-11 OW 66.56 80.00

06-Jan-12 OW 73.98 85.00

16-Jul-12 OW 73.51 80.00

26-Jul-12 OW 74.91 100.00

31-Jan-13 OW 73.87 94.00

Date Rating Share Price($)

Price Target($)

15-Dec-10 OW 71.23 86.00

04-Apr-11 N 84.18 86.00

11-May-11 N 83.04 87.00

30-Jun-11 N 91.19 94.00

10-Aug-11 N 84.87 99.00

07-Sep-11 N 90.94 102.00

18-Nov-11 N 93.57 106.00

08-Feb-12 N 116.00 120.00

08-Aug-12 N 125.13 140.00

16-Nov-12 N 125.65 126.00

04-Feb-13 N 137.72 130.00

The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entireperiod.J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated

Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe:J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform theaverage total return of the stocks in the analysts (or the analysts teams) coverage universe.] Neutral [Over the next six to twelvemonths, we expect this stock will perform in line with the average total return of the stocks in the analysts (or the analysts teams)coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return ofthe stocks in the analysts (or the analysts teams) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, ifapplicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policyreasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not arecommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stocks expected total return iscompared to the expected total return of a benchmark country market index, not to those analysts coverage universe. If it does not appear

in the Important Disclosures section of this report, the certifying analysts coverage universe can be found on J.P. Morgans researchwebsite, www.jpmorganmarkets.com.

Coverage Universe: Nadol, Joseph B: Alliant Techsystems Inc. (ATK), B/E Aerospace (BEAV), Boeing Company (BA), Bombardier(BBDb.TO), CACI International Inc (CACI), Comtech Telecommunications (CMTL), Embraer SA (ERJ), Exelis Inc. (XLS), GeneralDynamics Corp. (GD), Harris Corporation (HRS), Huntington Ingalls Industries (HII), L-3 Communications (LLL), Lockheed Martin(LMT), Northrop Grumman (NOC), Precision Castparts (PCP), Raytheon (RTN), Rockwell Collins (COL), SAIC (SAI), SpiritAeroSystems (SPR), Textron (TXT), TransDigm Group Inc (TDG), United Technologies (UTX), Wesco Aircraft Holdings, Inc. (WAIR)

0

45

90

135

180

225

270

Price($)

Nov

07

Aug

08

May

09

Feb

10

Nov

10

Aug

11

May

12

Feb

13

TransDigm Group Inc (TDG, TDG US) Price Chart

N $94 N $106

N $87N $102 N $130

OW $86N $86 N $99 N $120 N $140N $126

Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends.

Initiated coverage Dec 15, 2010.


10/11

10



J.P. Morgan Equity Research Ratings Distribution, as of March 30, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 43% 44% 13%IB clients* 54% 47% 38%

JPMS Equity Research Coverage 42% 50% 9%IB clients* 74% 64% 57%

*Percentage of investment banking clients in each rating category.

For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a holdrating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the tableabove.

Equity Valuation and Risks: For valuation methodology and risks associated with covered companies or price targets for coveredcompanies, please see the most recent company-specific research report athttp://www.jpmorganmarkets.com, contact the primary analystor your J.P. Morgan representative, or [email protected] .

Equity Analysts' Compensation: The equity research analysts responsible for the preparation of this report receive compensation basedupon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-USaffiliates of JPMS, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMS,and may not be subject to FINRA Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, publicappearances, and trading securities held by a research analyst account.

Other Disclosures

J.P. Morgan ("JPM") is the global brand name for J.P. Morgan Securities LLC ("JPMS") and its affiliates worldwide. J.P. Morgan Cazenove is a marketing

name for the U.K. investment banking businesses and EMEA cash equities and equity research businesses of JPMorgan Chase & Co. and its subsidiaries.

All research reports made available to clients are simultaneously available on our client website, J.P. Morgan Markets. Not all research content isredistributed, e-mailed or made available to third-party aggregators. For all research reports available on a particular stock, please contact your salesrepresentative.

Options related research: If the information contained herein regards options related research, such information is available only to persons who have

received the proper option risk disclosure documents. For a copy of the Option Clearing Corporation's Characteristics and Risks of Standardized Options,please contact your J.P. Morgan Representative or visit the OCC's website athttp://www.optionsclearing.com/publications/risks/riskstoc.pdf

Legal Entities DisclosuresU.S.: JPMS is a member of NYSE, FINRA, SIPC and the NFA. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the

UK by the Financial Services Authority. U.K.: J.P. Morgan Securities plc (JPMS plc) is a member of the London Stock Exchange and is authorized andregulated by the Financial Services Authority. Registered in England & Wales No. 2711006. Registered Office 25 Bank Street, London, E14 5JP. SouthAfrica: J.P. Morgan Equities South Africa Proprietary Limited is a member of the Johannesburg Securities Exchange and is regulated by the FinancialServices Board. Hong Kong: J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority and

the Securities and Futures Commission in Hong Kong. Korea: J.P. Morgan Securities (Far East) Ltd, Seoul Branch, is regulated by the Korea FinancialSupervisory Service. Australia: J.P. Morgan Australia Limited (JPMAL) (ABN 52 002 888 011/AFS Licence No: 238188) is regulated by ASIC and J.P.Morgan Securities Australia Limited (JPMSAL) (ABN 61 003 245 234/AFS Licence No: 238066) is regulated by ASIC and is a Market, Clearing and

Settlement Participant of ASX Limited and CHI-X. Taiwan: J.P.Morgan Securities (Taiwan) Limited is a participant of the Taiwan Stock Exchange(company-type) and regulated by the Taiwan Securities and Futures Bureau. India: J.P. Morgan India Private Limited, having its registered office at J.P.Morgan Tower, Off. C.S.T. Road, Kalina, Santacruz East, Mumbai - 400098, is a member of the National Stock Exchange of India Limited (SEBI

Registration Number - INB 230675231/INF 230675231/INE 230675231) and Bombay Stock Exchange Limited (SEBI Registration Number - INB010675237/INF 010675237) and is regulated by Securities and Exchange Board of India. Thailand: JPMorgan Securities (Thailand) Limited is a member

of the Stock Exchange of Thailand and is regulated by the Ministry of Finance and the Securities and Exchange Commission. Indonesia: PT J.P. MorganSecurities Indonesia is a member of the Indonesia Stock Exchange and is regulated by the BAPEPAM LK. Philippines: J.P. Morgan Securities PhilippinesInc. is a Trading Participant of the Philippine Stock Exchange and a member of the Securities Clearing Corporation of the Philippines and the SecuritiesInvestor Protection Fund. It is regulated by the Securities and Exchange Commission. Brazil: Banco J.P. Morgan S.A. is regulated by the Comissao de

Valores Mobiliarios (CVM) and by the Central Bank of Brazil. Mexico: J.P. Morgan Casa de Bolsa, S.A. de C.V., J.P. Morgan Grupo Financiero is amember of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission.Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [MIC (P) 049/04/2013 and

Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority ofSingapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Japan: JPMorganSecurities Japan Co., Ltd. is regulated by the Financial Services Agency in Japan. Malaysia: This material is issued and distributed in Malaysia by

JPMorgan Securities (Malaysia) Sdn Bhd (18146-X) which is a Participating Organization of Bursa Malaysia Berhad and a holder of Capital MarketsServices License issued by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi StockExchange and regulated by the Securities and Exchange Commission of Pakistan. Saudi Arabia: J.P. Morgan Saudi Arabia Ltd. is authorized by the

Capital Market Authority of the Kingdom of Saudi Arabia (CMA) to carry out dealing as an agent, arranging, advising and custody, with respect tosecurities business under licence number 35-07079 and its registered address is at 8th Floor, Al-Faisaliyah Tower, King Fahad Road, P.O. Box 51907,
http://www.jpmorganmarkets.com/http://www.jpmorganmarkets.com/http://www.jpmorganmarkets.com/mailto:[email protected]:[email protected]:[email protected]://www.optionsclearing.com/publications/risks/riskstoc.pdfhttp://www.optionsclearing.com/publications/risks/riskstoc.pdfhttp://www.jpmorganmarkets.com/mailto:[email protected]://www.optionsclearing.com/publications/risks/riskstoc.pdf


11/11

11



Riyadh 11553, Kingdom of Saudi Arabia. Dubai: JPMorgan Chase Bank, N.A., Dubai Branch is regulated by the Dubai Financial Services Authority(DFSA) and its registered address is Dubai International Financial Centre - Building 3, Level 7, PO Box 506551, Dubai, UAE.

Country and Region Specific DisclosuresU.K. and European Economic Area (EEA): Unless specified to the contrary, issued and approved for distribution in the U.K. and the EEA by JPMS plc.Investment research issued by JPMS plc has been prepared in accordance with JPMS plc's policies for managing conflicts of interest arising as a result of

publication and distribution of investment research. Many European regulators require a firm to establish, implement and maintain such a policy. This

report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000(Financial Promotion) Order 2005 (all such persons being referred to as "relevant persons"). This document must not be acted on or relied on by personswho are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be

engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) intheir home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to "wholesale clients" only. This material does not takeinto account the specific investment objectives, financial situation or particular needs of the recipient. The recipient of this material must not distribute it to

any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the term "wholesale client" has themeaning given in section 761G of the Corporations Act 2001. Germany: This material is distributed in Germany by J.P. Morgan Securities plc, FrankfurtBranch and J.P.Morgan Chase Bank, N.A., Frankfurt Branch which are regulated by the Bundesanstalt fr Finanzdienstleistungsaufsicht. Hong Kong: The

1% ownership disclosure as of the previous month end satisfies the requirements under Paragraph 16.5(a) of the Hong Kong Code of Conduct for PersonsLicensed by or Registered with the Securities and Futures Commission. (For research published within the first ten days of the month, the disclosure may

be based on the month end data from two months prior.) J.P. Morgan Broking (Hong Kong) Limited is the liquidity provider/market maker for derivative

warrants, callable bull bear contracts and stock options listed on the Stock Exchange of Hong Kong Limited. An updated list can be found on HKEx

website: http://www.hkex.com.hk. Japan: There is a risk that a loss may occur due to a change in the price of the shares in the case of share trading, andthat a loss may occur due to the exchange rate in the case of foreign share trading. In the case of share trading, JPMorgan Securities Japan Co., Ltd., will be

receiving a brokerage fee and consumption tax (shouhizei) calculated by multiplying the executed price by the commission rate which was individuallyagreed between JPMorgan Securities Japan Co., Ltd., and the customer in advance. Financial Instruments Firms: JPMorgan Securities Japan Co., Ltd.,Kanto Local Finance Bureau (kinsho) No. 82 Participating Association / Japan Securities Dealers Association, The Financial Futures Association of Japan,

Type II Financial Instruments Firms Association and Japan Investment Advisers Association. Korea: This report may have been edited or contributed tofrom time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul Branch. Singapore: JPMSS and/or its affiliates may have a holding in any ofthe securities discussed in this report; for securities where the holding is 1% or greater, the specific holding is disclosed in the Important Disclosures

section above. India: For private circulation only, not for sale. Pakistan: For private circulation only, not for sale. New Zealand: This material is issuedand distributed by JPMSAL in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the

purposes of their business, habitually invest money. JPMSAL does not issue or distribute this material to members of "the public" as determined in

accordance with section 3 of the Securities Act 1978. The recipient of this material must not distribute it to any third party or outside New Zealand withoutthe prior written consent of JPMSAL. Canada: The information contained herein is not, and under no circumstances is to be construed as, a prospectus, anadvertisement, a public offering, an offer to sell securities described herein, or solicitation of an offer to buy securities described herein, in Canada or any

province or territory thereof. Any offer or sale of the securit ies described herein in Canada will be made only under an exemption from the requirements tofile a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively,

pursuant to an exemption from the dealer registration requirement in the relevant province or territory of Canada in which such offer or sale is made. The

information contained herein is under no circumstances to be construed as investment advice in any province or territory of Canada and is not tailored tothe needs of the recipient. To the extent that the information contained herein references securities of an issuer incorporated, formed or created under thelaws of Canada or a province or territory of Canada, any trades in such securities must be conducted through a dealer registered in Canada. No securities

commission or similar regulatory authority in Canada has reviewed or in any way passed judgment upon these materials, the information contained hereinor the merits of the securities described herein, and any representation to the contrary is an offence. Dubai: This report has been issued to persons regardedas professional clients as defined under the DFSA rules. Brazil: Ombudsman J.P. Morgan: 0800-7700847 / [email protected].

General: Additional information is available upon request. Information has been obtained from sources believed to be reliable but JPMorgan Chase & Co.

or its affiliates and/or subsidiaries (collectively J.P. Morgan) do not warrant its completeness or accuracy except with respect to any disclosures relative toJPMS and/or its affiliates and the analyst's involvement with the issuer that is the subject of the research. All pricing is as of the close of market for thesecurities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change

without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of anyfinancial instrument. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are notintended as recommendations of particular securities, financial instruments or strategies to particular clients. The recipient of this report must make its own

independent decisions regarding any securities or financial instruments mentioned herein. JPMS distributes in the U.S. research published by non-U.S.affiliates and accepts responsibility for its contents. Periodic updates may be provided on companies/industries based on company specific developments orannouncements, market conditions or any other publicly available information. Clients should contact analysts and execute transactions through a J.P.

Morgan subsidiary or affiliate in their home jurisdiction unless governing law permits otherwise.

"Other Disclosures" last revised March 30, 2013.

Copyright 2013 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold orredistributed without the written consent of J.P. Morgan. #$J&098$#*P

Documents

2013_04_01 Aerospace & Defence JPM