NASA, Space Systems, and Why Boeing Stock Is Set to Soar
Boeing (NYSE:BA) does a whole lot more than just build airplanes. While planes are a large component of its business, the company also is involved in a number of other enterprises. 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 operates in five main segments you should be aware of, which reflect its operations: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The company’s main competition includes other big defense contractors, namely Lockheed Martin (NYSE:LMT) and Northrup Grumman (NYSE:NOC). While Boeing, Lockheed Martin, and Northrup Grumman all compete for government funding, Boeing has an advantage right now that I want to discuss.
In this article, I want to talk in greater depth about an achievement of the Network & Space Systems segment, which I think makes Boeing a better buy than Lockheed Martin or Northrup Grumman. This segment is engaged in the research, development, production, and modification of electronics and information solutions, strategic missile and defense systems, space and intelligence systems, as well as space exploration products. With this and each of its other segments, 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, but its recent performance and a brand new contract suggest it is a strong buy.
An incredibly large deal caught my eye today. Boeing has said it signed a $2.8 billion contract with NASA to develop the core stage of the Space Launch System. The agreement comes as NASA and Boeing complete the Critical Design Review on the core stage, the last major review before full production begins. This is a huge contract. What is the Space Launch System? As the name implies, it is the system that will help launch mankind into the future of space exploration.
Boeing is being tasked with helping to develop the most powerful rocket ever built. With this project, the company will help propel America’s return to human exploration of deep space. The $2.8 billion contract validates Boeing’s earlier selection as the prime contractor on the SLS core stage, including the avionics, under an non-final contract authorization. In addition, Boeing has been tasked to study the SLS Exploration Upper Stage, which will further expand mission range and payload capabilities.
Virginia Barnes, Boeing’s SLS vice president and program manager, said: “Our teams have dedicated themselves to ensuring that the SLS — the largest ever — will be built safely, affordably and on time. We are passionate about NASA’s mission to explore deep space. It’s a very personal mission, as well as a national mandate.”
During the CDR, which began last month, renowned experts in the field examined and confirmed the final design of the rocket’s cryogenic stages that will hold liquefied hydrogen and oxygen. This milestone marks NASA’s first CDR on a deep-space human exploration launch vehicle since 1961, when the Saturn V rocket underwent a similar design review as the United States sought to land an astronaut on the moon.
Boeing participated in that CDR, as well, as the three stages of the Saturn V were built by Boeing. Scheduled for its initial test flight in 2017, the SLS is designed to be flexible and evolvable to meet a variety of crew and cargo mission needs. The initial flight-test configuration will provide a 77-ton capacity, and the final evolved two-stage configuration will provide a lift capability of more than 143 tons. As if this isn’t reason enough to buy the stock, Boeing continues to deliver in the financial department.
In its most recent quarter, Boeing’s earnings took flight. The company reported that revenue increased 8 percent to $20.5 billion on higher commercial volume compared to the comparable quarter last year. Core earnings per share increased 14 percent to $1.76. First-quarter 2014 core operating earnings increased 12 percent to $2.1 billion, while core operating margin increased to 10.2 percent reflecting continued strong operating performance.
Do you know what is more amazing? The company raised its core earnings per share guidance for 2014 to between $7.15 and $7.35 from $7 to $7.20. GAAP earnings per share guidance for 2014 should come in between $6.10 to $6.30. The company is also flush with cash. Operating cash flow in the quarter was $1.1 billion, reflecting commercial airplane production rates, strong core operating performance, and timing of receipts and expenditures. During the quarter, the company repurchased 19.4 million shares for $2.5 billion, leaving $8.3 billion remaining under the current repurchase authorization expected to be completed over the next two to three years.
The company also paid $0.5 billion in dividends in the quarter, reflecting an approximately 50 percent increase in dividends per share compared to the same period of the prior year. As such, the company now pays a 2.2 percent dividend, helping to cut off some downside. I rate shares a buy at current levels and assign a $155 price target.
Disclosure: Christopher F. Davis holds 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.