Rockwell-Collins (NYSE: COL) might not be as popular as Boeing (NYSE: BA) or Lockheed Martin (NYSE: LMT), but the company’s roots can be traced back to WWII and the venerable P-51 Mustang.

In the ’60s, it produced the Apollo spacecraft that put Neil Armstrong on the moon. By the late ’70s, it was commissioned to spearhead NASA’s Space Shuttle program, starting with “Challenger,” and eventually building four other orbiters that made hundreds of trips into outer space.

#-ad_banner-#The GPS systems used by so many of our electronic, automotive and aviation products might not even exist without Rockwell-Collins. Its “Navstar” GPS satellites were among the first commissioned by the Pentagon.

By many measures, it has produced some of the most impressive and influential aerospace and communications technology of the 20th century.

And even after several mergers and acquisitions, and an eventual spinoff in 2001, Rockwell-Collins is still an aviation, defense and technological force to be reckoned with.

But this is more than just a company with an impressive lineage. It is the “best-in-breed” for its sector, heavily integrated into aerospace, defense, infrastructure and even rail. Growth in these sectors equals earnings growth for COL.

Given President Trump’s effect on consumer and defense stocks, and his expected $54 billion increase in defense spending alone, I’d expect Rockwell-Collins to be highly valued like many of its peers and trading at new all-time highs, but shares still have a little way to go before hitting either benchmark.

And even though Rockwell’s shares have rallied since Trump’s election, there’s still a disconnect between its valuation and that of its peers.

This disconnect is likely because Rockwell sells direct to companies like Boeing and Lockheed, instead of directly to the government. So when investors are researching top defense contractors, Rockwell’s name isn’t the most readily apparent. As more the popular trades get crowded, the information will trickle down

To get an idea of value, Rockwell’s forward price-to-earnings (P/E) multiple of 17.24 is 43% lower than its industry average (Bloomberg). Its ratio is also lower than both Boeing’s and Lockheed Martin’s, even though its income streams are quite diverse.

Oddly, the opposite tends to be the case when you look at other similar supplier-versus-end seller examples such as Apple and its supply chain companies.

Analog Devices (NYSE: ADI), which supplies chips for Apple’s iPhone, trades at a forward valuation nearly 50% higher than Apple’s. Many of Apple’s other suppliers also trade at a premium valuation as well.

And just as the iPhone would fail to operate without its components, many of the products made by Boeing, Lockheed, and others would fail without Rockwell.

Conservative Outlook From Company, Analysts Upping Targets
Even though Rockwell recently beat analysts’ consensus estimates for earnings in the fourth quarter, management tempered the outlook for the coming year.

The conservative outlook both on the earnings call and in the company’s annual report keeps the expectations low and allows the company’s stock to appreciate at a less volatile rate.

Analysts still have been upping their price targets, with a handful targeting prices of $100 and higher.

Rockwell’s all-time high of $99 was made back in May 2015. A 2% breakout is at the very low end of expectations and would put COL’s price just around $101. A 2% move might not sound like much, but with the trading strategy my subscribers and I use, we don’t need shares to to make big moves to generate large gains. By using a simple call option, we can amplify that 2% move into a nice 29% gain.

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