Industry Week in Review – December 21, 2012

On Thursday, the House of Representatives approved one portion of Speaker Boehner’s proposal to avoid the fiscal cliff, passing a bill that cancels defense cuts under sequestration.  The measure, passed in a 215-209 vote, allows the Office of Management and Budget to conduct a sequestration round if 2013 discretionary spending levels exceed certain limits.  However, the measure prohibits the Administration from cutting into the 2013 Defense budget to meet the proposed spending caps.  Senate Majority Leader Harry Reid has indicated that the measure will not likely be taken up by the Senate, while the Administration has signaled that the President would veto such a bill if passed. 

On the other hand, the House did not pass the second portion of Boehner’s “Plan B” proposal which would raise income tax rates only for those with incomes over $1 million.  Upon failing to garner sufficient votes for the proposal, Speaker Boehner pulled the bill prior to a formal vote.   Both the House and the Senate adjourned for the holiday recess and the Senate will reconvene on December 27th, leaving just a few days to arrive at a budget deal.

Big Movers

AAR Corp (Up 14.9%) – Shares were up for the week following the company’s announcement of its fiscal second-quarter 2013 results.  EPS was $0.44, beating estimates of $0.41, while sales grew 6.4% year-over-year to $512.8 million for the quarter.

TASER International (Up 13.6%) – Shares were up for the week following reports of large orders for the company’s upgraded X2ECD model tasers from police departments in Arizona, Ohio, Texas, Georgia, and Louisiana.  While the company may be experiencing headwinds caused by potential gun control legislation following last week’s shooting in Newtown, CT, TASER is likely to remain insulated from legislation due to the non-lethal nature of its weapons.

Embraer (Up 12.4%) – Shares were up for the week following the company’s announcement that Fuji Dream Airlines has signed a contract for two Embraer 175 jets at a cost of $81.6 million.

Smith & Wesson Holding Corporation (Down 11.3%) – Shares were down for the week following the Newtown, CT shooting.  While the company’s products were not involved in the shooting, the gun industry is facing both public backlash and possible stricter gun control legislation, dragging down shares in the industry.

Relevant Transactions

GE Aviation to acquire Avio S.p.A, an Italian manufacturer of engines, power transmissions, drive trains, turbines, and other aviation components and subsystems, for $4.3 billion. The transaction, which represents a 2012E EBITDA multiple of approximately 8.5x, expands GE Aviation’s components portfolio, and will enable Avio to pursue new opportunities in power-generation, oil, and marine products.

Kanders & Company acquired controlling interest in DHS Technologies, a provider of rapid assembly infrastructure and shelter systems for military, civilian, and medical applications, for an undisclosed amount.  The investment by Kanders & Company will enable DHS Technologies to expand into new areas through organic initiatives and acquisitions, and provides Kanders with a strong platform to grow in various defense markets.

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