Seeking Alpha: GKN Gets Interesting If They Can Get The Margins Up

Britain's GKN (OTCPK:GKNLY) is the kind of stock that can break an investor's heart. On one hand, the company's strong share in aerostructures and engine structures looks attractive as significant programs move forward at Airbus Group (OTCPK:EADSY) and Boeing (NYSE:BA). Likewise, the company's leadership in driveline components is appealing as penetration of all-wheel drive and hybrid vehicles grows. The problem is that aerospace and autos are cyclical businesses where OEMs habitually lean hard on suppliers and GKN doesn't have the best record of attractive sustained operating margins, free cash flow, or returns on capital.

If things go right, meaning that the aerospace and auto markets remain healthy, key programs ramp as expected, and GKN achieves better operating leverage, the shares could do very well over the next two to four years. If GKN drops the ball on margins, though, or if demand for aircraft and/or autos disappoint, the shares aren't likely to do so well.

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GKN Gets Interesting If They Can Get The Margins Up

Seeking Alpha: LMI Aerospace Neither A-OK Nor DOA

Based on the comments managements have made with the earnings reports from companies like Honeywell (HON) and General Electric (GE), it sounds like the commercial aerospace market is getting back on to its growth trajectory. That's good news for Boeing (BA), EADS' Airbus, and the myriad suppliers that serve them, and it puts the bull thesis back into play that it's going to take many years of production growth to satisfy the burgeoning demand for air travel in regions like Asia and Latin America.

I have my doubts, though, as to whether LMI Aerospace (LMIA) is the right way to play this trend. The company does business with key players like Boeing, General Dynamics (GD), and Spirit AeroSystems (SPR), but I am not sure that LMI's capabilities in fabrication, machining, and engineering hold enough value to make this a key player in that trend. Along those lines, the company's margins and returns on capital have been erratic and generally unimpressive, albeit with enough bright spots here and there to make an investor wonder "what if" should management execute on its goals and targets.

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LMI Aerospace Neither A-OK Nor DOA