Updated Research Report on Boeing - Analyst Blog

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On Jun 6, 2014, we issued an updated research report on The Boeing Co. ( BA ). 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 expectations.

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, Bombardier and Embraer SA ( ERJ ). 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 programs.

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. ( LMT ) 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. ( LDOS ). While Embraer carries a Zacks Rank #1 (Strong Buy), Leidos Holdings holds a Zacks Rank #2 (Buy).


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: BA , LDOS , ERJ , LMT

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