On Jun 6, 2014, we issued an updated research report on
The Boeing Co.
). This Zacks Rank #3 (Hold) commercial aerospace behemoth reported
positive earnings surprises in the trailing four quarters with an
average beat of 13.78%.
Boeing once again started the year on an impressive note,
delivering strong first quarter 2014 results backed by robust
deliveries. The company's top and bottom lines were above
A recovery from the financial crisis and consolidation within the
industry have enabled airliners to place big orders for new
airplanes with aircraft manufacturers like Boeing, Airbus,
). The company expects passenger traffic in the Asia-Pacific region
to rise by leaps and bounds driven by growing economies.
Besides its flourishing Commercial Airplane business, Boeing
continues to win substantial defense orders. Boeing's defense
business stands out among its peers by virtue of its broadly
diversified programs, strong order bookings and order backlog. Its
Global Services and Support/GS&S unit posted a 12.1% margin
during the first quarter, about 150 basis points ahead of the
guidance owing to strong performance on integrated logistics
Again, Long Range Strike (LRS) can offset a material portion of the
at-risk fighter sales. The Pentagon also plans to invest
approximately $3.5 billion per annum in LRS development by the end
of the decade, and most likely more subsequently, once production
ramps. The company is witnessing strong demand internationally for
its defense products, such as fighter jets, the rotorcraft line-up
and 737-based military derivatives.
Boeing's strong balance sheet and cash flows provide financial
flexibility in matters of incremental dividend, ongoing share
repurchases and earnings accretive acquisitions. Free cash flow was
again very strong at $615 million in the first quarter and
operating cash flow before pension contributions showed a
significant 112% year-over-year increase.
The company also seeks to strengthen its Boeing Edge capabilities
with two back-to-back acquisitions of Dutch and British technology
firms. Boeing Edge is the commercial aerospace industry's largest
portfolio of integrated services.
Although the threat of defense cutbacks will loom over the defense
biggies like Boeing or
Lockheed Martin Corp.
) going forward, Boeing still remains optimistic with a 2014
defense revenue target of $30.0 billion to $31.0 billion and an
operating margin of approximately 9.5%.
Some better-ranked stocks in the aerospace and defense sector
include Embraer and
Leidos Holdings, Inc.
). While Embraer carries a Zacks Rank #1 (Strong Buy), Leidos
Holdings holds a Zacks Rank #2 (Buy).
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