We have downgraded our long-term recommendation to Neutral
from Outperform on the aerospace and defense behemoth
The Boeing Co.
) on Sep 23, 2013.
Why the Downgrade?
Boeing is the largest aircraft manufacturer in the world in terms
of revenue, orders and deliveries, and one of the largest
aerospace and defense contractors besides other defense giants
Lockheed Martin Corp.
Northrop Grumman Corp.
). In fact, Boeing's defense business accounts for approximately
half of its top line.
However, headwinds in the global airline industry and cutbacks in
the U.S. defense budget have certainly shaken the confidence of
many investors now. Budget deficits and political uncertainty
make future defense budgets vulnerable to cutbacks. The tepid
recovery of the U.S. economy raises concerns, which will likely
affect Boeing's prospects.
Boeing recently declared that it will discontinue its production
of the C-17 Globemaster III military cargo jet and close the C-17
final assembly facility in Long Beach, Calif. in 2015. The
decision comes in the wake of a lack of sufficient orders. The
threat of sequestration has created significant planning
difficulties for the customers and the entire aerospace industry,
thereby leading to a decline in orders.
In its commercial division, the company's next-generation 787
Dreamliner was once again in the news for the wrong reason. Last
week, Norwegian Airline had to ground its 787s after a hydraulic
pump failure left a 787 stranded in Bangkok. Again, on Sunday, a
787 Dreamliner operated by the Polish airline LOT had to land
unexpectedly in Iceland because of a fault in the airplane
The Norwegian airline has already asked Boeing to repair the
craft following repeated breakdowns while LOT demanded
compensation from Boeing for the losses incurred due to the 787′s
BOEING CO (BA): Free Stock Analysis Report
LOCKHEED MARTIN (LMT): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
RAYTHEON CO (RTN): Free Stock Analysis Report
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The much-hyped 787 Dreamliner was marred by glitches from the
very beginning. Its delayed launch in 2011 was followed by two
battery overheating incidents in Jan 2013 that grounded the
entire fleet of 50 Boeing 787 airplanes. However, in Apr 2013,
Boeing received the green light from the U.S. Federal Aviation
Administration for the 787 Dreamliner's redesigned battery.
In July, the Dreamliner operated by Ethiopian Airlines caught
fire while it was parked at London's Heathrow Airport.
Meanwhile another 787 operated by Thomson Airways on way to
Orlando, FL, had to return to Manchester after unspecified
Though the company has had glitches with its 787 mascot, its
share price has proven to be shock resistant, surging 54.9% year
to date. The company presently retains a short-term Zacks Rank #3
(Hold). Stocks worth considering in the space are Lockheed
Martin, Northrop and Raytheon; all with a Zacks Rank #2