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Dow-30 Earnings: Boeing – Second Quarter 2013
Aerospace and defense behemoth Boeing (BA - Free Boeing Stock Report) recently released better-than-expected June-period financial results. For the interim, revenues were $21.8 billion, or 3% higher than our estimate. Share earnings came in at $1.41, besting our call by $0.12, and the year-earlier tally by 11%. Continued healthy aircraft deliveries and orders, as well as increased margins and a lower share count, helped fuel the bottom line. After the announcement, Boeing stock was up nicely in early morning trading.
During the June quarter, the company delivered 169 commercial aircraft, compared to 150 a year ago. The operating margin widened, thanks mainly to lower research & development expenditures. It also booked 481 net orders during the interim, which brought its backlog to a strong 4,800 planes valued at $339 billion.
The Defense, Space & Security division also put in a decent showing. Although revenues declined 4%, the operating margin expanded 40 basis points, to 9.5%. Boeing also booked a good deal of new business during the quarter. In particular, it received a couple of multi-year contracts for the CH-47 Chinook and V-22 Osprey programs.
Overall, it was a good quarter for Boeing. Looking ahead, we continue to like the company's near- and long-term prospects. Although there are still some economic concerns, both at home and abroad, we think that passenger air travel will continue to increase at a decent rate over the next few years. As a result, a number of domestic airlines should possess the financial flexibility and eagerness to replace their aging fleets with new aircraft. In anticipation, Boeing will likely continue to ramp up production schedules for some of its most popular models, including the 737 and 777. In our view, Boeing will also receive large orders from several foreign carriers, and its huge backlog should support full production for many years. The situation will only improve further once the problems with the 787 Dreamliner are worked out. We consider these issues to be relatively minor in nature, and we continue to believe that the 787 will eventually form the backbone of Boeing's commercial aircraft portfolio. Orders for this new plane now exceed 1,000.
For 2013, due mostly to the second-quarter outperformance, we are raising our share-net estimate by $0.15, to $5.60, which would represent a year-over-year increase of almost 10%. Looking further out, at this time, we are leaving our 2014 bottom-line estimate unchanged at $6.50, and project that earnings will reach $7.70 a share by the 2016-2018 timeframe.
As for this blue chip, it has continued to perform well. In fact, year to date, the stock price has advanced 45%. In comparison, the Dow Jones Industrial Average is up about 20% over the same period. Due to the strong market performance, we now feel that Boeing stock is fully valued. In fact, the equity is already trading at more than 19 times our 2013 share-net estimate, which is materially higher than its historical average, as well as the multiple we project to 2016-2018. Thus, although we like the company's prospects, we suggest that interested investors wait for a better entry point before committing funds here. In addition, we think that it may be a good idea for current shareholders to take some profits.
Lastly, we continue to urge all interested parties to monitor the actions of Congress and the White House in regard to the Defense Budget. This topic will likely continue to be a hot-button issue in Washington, and may cause Boeing to lose some orders over the next several years. That said, the company ought to be able to offset these losses due to its immense commercial business and exposure to foreign markets.
About The Company: The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF). In 2012, foreign sales accounted for 54% of overall revenues, and R&D amounted to 4% of sales.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.