Boeing (NYSE:BA) announced strong first quarter earnings this April; however, Boeing’s shiny new fleet of 787 Dreamliners has been under media scrutiny after several recent glitches. Will this turbulent debut keep Boeing from a huge 2013? Let’s use our CHEAT SHEET investment framework to see whether Boeing is an OUTPERFORM, WAIT AND SEE, or STAY AWAY?
C = Catalysts for the Stock’s Movement
Boeing’s profit rose 20 percent in the first quarter of 2013. The aircraft manufacturer attributed its success to profitable deliveries of its hallmark 737 and 777 jet models. While battery problems in its new 787 Dreamliner reduced Boeing’s potential profitability, the company still reported a 13 percent increase in year-over-year earnings from its commercial airline division. Additionally, Boeing suppressed worries that the reduction to the U.S. defense budget would hurt earnings, reporting a 12 percent year-over-year increase for its defense, space, and security division. Boeing has set impressive guidance for 2013, expecting revenue to reach up to $85 million over the coming year.
Boeing had a strong showing at the Paris Air Show last week, announcing orders of $66 billion, slightly less than that of its French rival, Airbus. Its 737 MAX, scheduled for delivery in Q3 2017, stole the show; CIT placed 30 orders for the new plane at a value of around $3 billion and Ryanair inked a deal for 175 new 737s at a value of around $15.6 billion. Boeing’s backlog is currently worth around $392 billion, and shareholders all stand to get a piece of it in the coming years.
T = Trends Support the Industry in which the Company Operates
The aerospace industry is growing rapidly in developing markets, specifically China and India. The growth rate in emerging markets is in the double digits, which has helped push the global aerospace growth rate up to 5 percent—nearly double the growth rate of global GDP. Currently, orders from developing markets comprise around half of Boeing’s backlog. Boeing estimates that aircraft sales will total around $4.5 trillion over the next 20 years; with a virtual duopoly it shares with Airbus, investors can expect that Boeing will earn about half of that.
E = Earnings Growth is Mixed
As you can see from the chart below, quarterly earnings have increased year-over-year in three of the last five quarters. The most recent quarterly EPS of 1.44 was a significant improvement from Q1 2012, increasing 18.03%. Because of Boeing’s impressive backlog and recent success in generating new business, in addition to their cost-cutting initiative in their defense, space, and security division, we expect that year-over-year earnings growth will increase moving forward.
|2013 Q1||2012 Q4||2012 Q3||2012 Q2||2012 Q1|