Despite the fact that oil and gas prices are on the rise, people are flying more than ever. This is surprising in light of the detrimental circumstances the airlines have faced since the 2001 World Trade Center attacks. Immediately following these attacks, the demand for air travel dropped dramatically. Fears of flying combined with the economic crisis that would hit a few years after could have spelled disaster for the airline industry.
Instead, they tightened their belts across the board and got down to business. In doing so, the Federal Aviation Administration reported growth and profitability in 2010 at 8% for the first time since 2007. The growth forecast is now set at 3.7% over the next five years.
Boeing is on my radar for companies in 2012 with stock that will be profitable. This is because they not only hold a unique place in the aviation manufacturing world, but as of late, they’ve been catching the eye of prominent bidders out of the Middle East.
Boeing is paving a solid path in commercial airline production as well as defense, space and security aircraft. The company is currently rated third in terms of military production, just behind Lockheed Martin. Looking specifically at their defense stock, dailyfinance.com predicts that Boeing will continue to be a significant cash generator on the market, and I tend to agree with them. With new products on their market that incorporate satellites, rotocraft, fighter jets, missiles as well as communications and space systems; Boeing is continually expanding their market. I believe this growth can only benefit them when year-end stock values are returned.
The company’s cash flow value currently averages $3.6 billion annually. This is an average which is based on a five-year evaluation. For the moment, that number supports 18% of their total net income. Recent international purchases and orders that Boeing has closed on will likely boost those numbers significantly over the course of this year.
A great deal of Boeings’ positive stock perspectives for 2012 is based on their recent transactions with airlines in the Middle East. The company forecasts that future orders for airlines like Qatar Airways, Emirates Airlines alongside various others could add up to as much as $450 million over the next 20 years. As of last June 2011, Boeing landed a massive order for six 777-300 ERs with Qatar Airways at the annual International Air show in Paris. The Wall Street Journal MarketWatch quoted the value of the order as standing at $1.7 billion.
In November, Boeing struck yet another lucrative deal; this time with Emirates Airlines. The Chicago Tribune quoted that transaction as closing out around $18 billion. Alongside the launch of the new 787 Dreamliner, Boeings’ current orders have them backlogged by hundreds of aircraft. This long list of consistent production requests gives the company the potential to raise not only their profits, but their overall stock value this year dramatically.
When it comes to business growth patterns, Boeing has remained consistent and seems to be on its way up. The company’s net income increased more than 250% between 2009 and 2010 with the difference split between 1.3 billion and 3.31 billion. 2011 showed a similar increase with net profits jumping 17%. While these numbers may have a lot to do with Boeing’s efforts to streamline production procedures in 2011; I see the company more than doubling their net income yet again in 2012 with significant project line-up working in their favor.
Boeing dividends currently yield 2.4% with a payout ratio of 31%. With an operating cash flow of just over $4 million, shares with Boeing are consistently trading for $80. I see these numbers increasing dramatically over the next few months as orders are completed for Qatar Airways as well as Singapore Airlines. Similarly, I see stock numbers peeking around June 2012 when Paris hosts its annual international air show. This is the same event at which Boeing received its order from Qatar Airways last year and promises to be lucrative this year as well.
And because the airline industry is so short on competition, Boeing’s advantages play out big. Lockheed Martin (LMT) is trading at about $89 per share, and the news is not good for this huge defense contractor. Defense Department cuts are going to hurt their ability to innovate, as they see the lack of a diverse clientele damage their ability to compete. Northrop Grumman Corp (NOC) also has a diversity problem, relying on defense contract to keep their earnings afloat and experiencing the cuts in funding with grace, but not without making some cuts of their own. Boeing is the only company in the field that has a diversity of investors and profit streams that can deal with these kinds of setbacks.
The only scenario that may hinder stock growth for Boeing would be if problems with their new 787 Dreamliner become an obstacle. This is particularly concerning when looking at the company’s outstanding orders with Singapore Airlines. Boeing currently has over 55 Dreamliner jets on backorder for the airline, but according to Reuters, recently discovered certain flaws that may stall or halt production. If this happens, the market would certainly take an unpleasant turn.
In the event that Boeing continues to perform as they have since 2010, there is substantial growth in their future. I am of the opinion that this company is definitely worth watching. With 2012 proving to be a year in which travel is topping the charts, it makes sense for investors to take note of a company like Boeing, whose entire production value relies on travel and transportation demands.
About the author:I'm mostly interested in income investing using dividends, preferred stocks and other debt instruments, and pair trading.
I fundamentally analyze every business from the top down.
In my personal life, I have a strong Jewish faith and enjoy playing Scrabble and entrepreneurship.