Boeing Stays Neutral - Analyst Blog
May 06 2013 - 12:50PM
Zacks
We have maintained our Neutral
recommendation on The Boeing Company (BA) 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 market indices.
Why Reiteration?
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
program execution.
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
reported quarter.
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
prospects.
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 (NOC), Wesco Aircraft Holdings,
Inc. (WAIR), and Huntington Ingalls Industries,
Inc. (HII). While Northrop Grumman and Wesco Aircraft
retain a Zacks Rank #2 (Buy), Huntington Ingalls carries a Zacks
Rank #1 (Strong Buy).
BOEING CO (BA): Free Stock Analysis Report
HUNTINGTON INGL (HII): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
WESCO AIRCRAFT (WAIR): Free Stock Analysis Report
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