) has posted impressive results in the first nine months of this
year with strong growth in both revenues and profits driven by
higher commercial airplane deliveries. The aircraft manufacturer is
likely to end 2013 with a strong fourth quarter as well. In 2014,
we anticipate Boeing's commercial airplane business to continue to
post robust growth on higher commercial airplane deliveries driven
by its huge order backlog. In comparison, the company's defense
business, which constitutes slightly under 40% of its total
revenues, will likely face a challenging environment due to reduced
military spending from the US and many European governments.
However, the company's initiatives around cost cutting will likely
help offset the impact on its 2014 profits from government
We currently have
price estimate of $124 for Boeing
, around 10% below its current market price.
our complete analysis of Boeing here
Commercial Airplane Segment Is Poised To Grow In
Driven by strong order inflows, Boeing's commercial airplane
backlog rose from 4,373 undelivered aircraft at the beginning of
2013 to 4,777 undelivered aircraft at the end of the third quarter.
This expanding order backlog forced the company to hike production
rates of many of its models including the 737, 777 and 787. The
company hiked 737 production rate from 35 to 38 aircraft per month
in the first quarter, and plans to raise this further to 42
aircraft per month in 2014. Boeing also increased 777 production
rate from 7 to 8.3 aircraft per month in the first quarter.
Finally, in the 787 program, Boeing achieved a production rate of 7
aircraft per month in May and currently expects to produce the 787
at a higher rate of 10 aircraft per month in 2014.
Additionally, we do not expect these recent production rate
hikes in the 737, 777 and 787 programs to be rolled back in 2014,
as Boeing's backlog remains very high. At current production rates,
it will take the company nearly 8 years to clear off its existing
backlog of 4,777 aircrafts. Thus, these higher production
rates across Boeing's three highest selling aircraft models will
lift its commercial segment profits in 2014 through higher
Separately, in our opinion, Boeing's backlog could rise further
in 2014 driven by strong order inflows from airlines worldwide.
Airlines from the developed world continue to place orders for new
aircraft to replace their aging fleets and airlines from the
developing regions continue to place aircraft orders primarily to
add capacity to their fleets. Looking at the coming year, these
trends are likely to persist as airline profitability and air
travel demand trends remain strong. Profits for the global airline
industry are forecast to rise to $16 billion in 2014, from $12
billion in 2013, according to figures cited by Boeing in its third
quarter earnings release. While the global airline passenger
traffic is expected to continue to grow in 2014.
For Boeing shareholders, higher profits in 2014 could mean
stable stock repurchases and higher dividend payouts enabled by
increased cash flows.
Defense Segment Could Witness A Challenging 2014
In comparison, Boeing's defense segment could witness a tough
2014 due to reduced military spending from the U.S. and some key
European countries. Sequestration impact will likely become more
pronounced in 2014 if Congress is unable to come up with a deal,
but this impact will be offset in part from growing international
On its part, Boeing continues to focus on growing its
international defense sales to offset the impact from weak defense
spending at home. This year, international defense sales are
expected to constitute around 30% of Boeing's total defense sales,
up from around 7% five years back. We figure that in 2014, the
company remains well-positioned to maintain this share of
international sales in its defense sales, as of the roughly $70
billion in its defense backlog, nearly 40% is constituted by
international orders. This significant share of international
defense sales in Boeing's defense business will help it offset the
negative impact from U.S. defense budget cuts.
Additionally, Boeing is reducing its cost structures assuming
that sequester remains in place. We figure this realistic
assessment will benefit the company even if the sequester ends next
year, as in such a case reduced costs will provide an upside to its
defense segment profits. So far, the company has taken several
measures to slash its costs. These include reductions in overhead
and corporate costs, headcount reductions and facility closures,
including the recent decision to close down the C-17 production
line. Looking ahead, the company continues to focus on slashing its
costs which will likely help expand defense segment margins and
profits in 2014.
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