777 More Reasons to Buy Boeing
The Boeing Company (NYSE:BA) is a Dow Jones component that most investors are familiar with. While the business end isn’t exactly a household name, nearly everyone has heard of the company — if at the least for its airplanes. Aside from commercial jetliners, the company is involved in designing and manufacturing military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company has grown tremendously in the last 100 years and is incredibly profitable. The stock has pulled back about 10 percent from its highs, and I have recently opined that I believed the stock was a buy.
In terms of its competition, I think Boeing is the top stock in the sector. It faces military contract competition from Northrupp Grumman (NYSE:NOC) and Lockheed Martin (NYSE:LMT). While both Northrupp Grumman and Lockheed Martin do win a considerable number of contracts, Boeing holds its own. What about for its commercial jetliners? Well, there is really only one company to be concerned with and that is Airbus (EPA:AIR.PK). Boeing has been competing with Airbus for a number of large contracts. Airbus offers its huge Airbus A350 jetliners but Boeing is competing with its Dreamliner and a number of other planes. But Boeing just gave its shareholders another reason to smile while simultaneously delivering a blow to Airbus.
The United Emirates Airline and Boeing came out to announce that it has finalized an order for 150 777Xs, valued at $56 billion at list prices. First announced as a commitment at the 2013 Dubai Airshow, the order by the world’s largest 777 operator was part of the largest product launch in commercial jetliner history. The order is a combination of 115 777-9Xs and 35 777-8Xs. The contract also includes purchase rights for an additional 50 airplanes that, if exercised, could increase sale value to approximately $75 billion at list prices. Emirates president Sir Tim Clark stated:
“With the order for 150 777Xs, Emirates now has 208 Boeing 777s pending delivery, creating and securing jobs across the supply chain. Today Emirates operates more than one in every 10 Boeing 777s aircraft built. We fly 138 of these efficient planes across the globe spanning the USA and Latin America in the west, to New Zealand and Japan in the East. The 777X will offer us operational flexibility in terms of range, more passenger capacity and fuel efficiency, and we look forward to inducting them into our fleet from 2020.”
These products are quite revolutionary. The 777X will contain the latest technologies including the most advanced commercial engine ever and an all-new high efficiency composite wing that has a longer span than today’s 777. The 777-9X model will be 12 percent more fuel efficient than any competing airplane. This is absolutely critical in today’s competitive environment where fuel prices drip higher each month. The 777-8X model is also 5 percent more efficient than its competitors at all ranges. Design of the 777X is underway and production is set to begin in 2017, with first delivery targeted for 2020. To date, the 777X has accumulated 300 orders and commitments from six customers worldwide. Boeing Commercial Airplanes president and CEO Ray Conner stated:
“We are extremely proud to have Emirates, the world’s largest 777 operator, continue its long-standing partnership with Boeing by becoming the largest launch customer for the 777X. Being a customer-driven product, I’m confident the 777X with its new engines and all-new composite wing design will bring superior value in terms of performance, efficiency and reliability to Emirates and our other launch customers.”
Boeing can stand on its own as well. As a result of amazing performance last quarter, the company’s core earnings per share guidance for 2014 increased to between $7.15 and $7.35, from $7.00 to $7.20 to reflect increased sales. GAAP earnings per share guidance for 2014 is between $6.10 and $6.30. The company also pays a 2.2 percent dividend as well, helping to cut off some downside. I rate shares a buy at current levels and assign a $155 price target.
Disclosure: Christopher F. Davis hold no position in Boeing and has no plans to initiate a position in the next 72 hours. He has a buy rating on the stock and a $155 price target.