We have maintained our Neutral recommendation on
The Boeing Company
) on Apr 29, 2013. The company's solid first quarter 2013 results
despite the 787 headwind were commendable. However, risk
associated with the axe on the domestic budget keeps us on the
sidelines. Boeing currently retains a Zacks Rank #3 (Hold),
implying that it is expected to trade in line with the broader
On Apr 24, Boeing posted stellar first quarter 2013 results,
beating the Zacks Consensus Estimate by 17.7% as well as the
year-ago profit by 24%. Its strong numbers came from solid
operating performance fueled by productivity gains and impressive
Backlog also increased to a record $392 billion that included $20
billion of net orders during the quarter. The premier jet
aircraft manufacturer and one of the largest defense contractors
also boosted its profit margins on the back of profitable
programs (737 and 777). New plane program announcements for this
year and the next (787-10 and 777X) are expected to result in
incremental orders in the near term.
In the defense business, revenue and margins continued to be
solid in spite of imminent threats of defense budget cuts.
Backlog at Defense, Space & Security stood at $68.0 billion,
42% of which comprised of orders from international clients.
Although the threat of defense cutbacks will loom over the
company going forward, Boeing foresees defense revenue for the
current year to be between $30.5 billion and $31.5 billion with
operating margin greater than 9%.
Notably, concerns relating to 787 grounding were finally resolved
as Boeing received the approval from the U.S. Federal Aviation
Administration ("FAA") for the 787 Dreamliner's redesigned
battery during the first quarter.
Although the FAA approval came as a relief, margins at the Boeing
Capital Corporation ("BCA") segment will be adversely affected by
the resumption of low-margin 787 deliveries.
In fact, in the first quarter, only one 787 was delivered while
production of new 787s continued unabated. This resulted in an
inventory rise of about $3 billion, thereby reducing cash in the
Again, a large percentage of Boeing's business is generated
within the US, and from government contracts. Budget deficits and
political uncertainty make future defense budgets vulnerable to
cutbacks. The tepid recovery of the U.S. economy raises fears of
further cutbacks in defense budgets, which will affect Boeing's
Other Stocks to Consider
There are other stocks in the sector that appear more promising
and are worth accumulating now. These include
Northrop Grumman Corporation
Wesco Aircraft Holdings, Inc.
Huntington Ingalls Industries, Inc.
). While Northrop Grumman and Wesco Aircraft retain a Zacks Rank
#2 (Buy), Huntington Ingalls carries a Zacks Rank #1 (Strong
BOEING CO (BA): Free Stock Analysis Report
HUNTINGTON INGL (HII): Free Stock Analysis
NORTHROP GRUMMN (NOC): Free Stock Analysis
WESCO AIRCRAFT (WAIR): Free Stock Analysis
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