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Boeing Co. (BA) - Quality Stock at Attractive Valuation
Posted by: Federico Flom (IP Logged)
Date: December 6, 2011 11:30AM
Boeing Company is a premier jet aircraft manufacturer and one of the largest defense contractors in the U.S.
The company's customers include domestic and foreign airlines, the U.S. Department of Defense (DoD), the Department of Homeland Security, the National Aeronautics and Space Administration (NASA), other aerospace prime contractors, and certain U.S. government and commercial communications customers.
The company has several segments of operations:
Generally speaking, commercial aviation is a growth driver because companies need to replace and upgrade their existing fleet to move towards demand.
BA is a leader in this segment and will further position its strength with the introduction of the 777 model. Boeing in particular, is always focused on innovation to nurture the relationship with key suppliers and customers. This innovation approach has enabled Boeing to set up a sound economic moat based on its historic brand, management, reputation and innovation.
Why I like Boeing
Boeing is the largest aircraft manufacturer in the world in terms of revenue, orders and delivery. Furthermore, it is one of the largest aerospace and defense contractors. Boeing is present in 90 countries.
Apart from the commercial segment, Boeing has gained a solid position as one of the major players in the defense business. Indeed, it stands out among its peers thanks to its diversified programs, order bookings and an order backlog that by mid-2011 has reached $61 billion.
Internationally, the company is witnessing strong demand for its defense products.
Least but not last, Boeing has a strong balance sheet and cash flows that provide flexibility thus allowing it to increase dividends, repurchase programs and acquisitions.
Boeing $330 billion backlog provides revenue visibility. I like the fact that Boeing is looking to increase production to meet huge demand for its aircraft. The company will increase production on the 787 from 2 planes per month to 2.5. The company plans to increase this number to 10 per month by the end of 2013. Boeing is currently increasing production on its 737 and 777 models as well. The company plans to increase production by 20 to 30% for both models. Full production increases should be in effect by 2014. However, the macroeconomic environment and perceived threats to air travel make production vary.
In terms of defense, government’s lack of certainty is negatively impacting the company. I consider this a macro factor than sooner or later will stabilize.
What about quarter results?
In the commercial airplane segment, operating margins have expanded to 9.7%.
The total sales, which have amounted to $17.3 billion were represented by 54% and 46% in commercial and defense segments, respectively.
EPS were of $1.46 enabling Boeing to raise its outlook to $4.30-$4.40.
While defense revenue of $8.2 billion was flat, commercial revenue grew 9%. Furthermore, operating margins spread 10%.
Boeing is highly profitable. Its current situation as well as the status it has been able to maintain along the years can be attributed to its management.
The risk-averse mentality of the company leaders has enabled Boeing to be a No. 1.
“A risk-oriented management is the key to Boeing leading status in the market,” says Ben Havoc, an S&P analyst. “Boeing is one of the soundest companies in its industries.”
The board is made up of 12 members who are largely independent and have wide experience in the industry. Their compensation involves a base salary, annual incentive and incentive compensation in the long term.
Boeing’s future expectations are positive. The gradual recovery of the economy will improve freight and passenger traffic. The commercial aerospace market will certainly improve.
Boeing is forecasting an increase in the production of 737 by 2013, together with a rise in 777 production. 787 will move from the production of two planes per month to 10 units each month by 2013. Commercial operations are spectacular.
However, the defense segment is also strong. Despite the U.S. government’s intention to cut down the defense spending, the business accounts for 50% of the firm’s earnings.
The most interesting part comes from the key sponsorship that BA has. The stock is held by prominent Gurus such as George Soros, Mario Gabelli, Richard Snow and Michael Price. Almost every Guru maintained or increased the position in the last quarter, even when the market went down and the aviation industry experienced not positive catalysts, such as the cut in defense budget from the government.
In terms of BA multiples, the stock is historically cheap on a P/E and P/S basis. In the chart we can see that BA has a maximum P/E of 32 while now in trading less than half that number. Also its P/S is fairly low in comparison to the average P/S of 1.2 the company has in the last years.
Re Boeing Co BA - Quality Stock at Attractive Valuation
Posted by: mcwillia (IP Logged)
Date: December 7, 2011 05:42PM
Boeing's Wonderful Future Moat...
Development of the 787 has given Boeing a generational advantage over its European and smaller rivals. The decision to gain this decisive advantage by eschewing a double-deck jumbo based on 70's era technology, in favor of working out the developmental wrinkles of next generation efficiency, and doing so by capturing the mid-range segment first in order to underwrite the costs, is genius.
Boeing will be able to bring one new aircraft after another into service and kill off Airbus' entire line plane by plane until Airbus catches up, and with Europe in shambles, Boeing's lead here will lengthen. The 737 replacement air-frame will be a world-beater. Re-engining in the meantime doesn't bother me either.
The FLSB needs to take its socialist opinions and move over to Europe, however. Sorry...long position in BA.
Re: Boeing Co. (BA) - Quality Stock at Attractive Valuation
Posted by: tkervin (IP Logged)
Date: December 7, 2011 07:43PM
An alternate view......