The Boeing Company (BA - Free Boeing Stock Report), the world's largest aerospace/defense corporation, recently released better-than-expected September-quarter financial results. For the period, revenues were $22.1 billion, or 2% higher than our estimate. Share earnings came in at $1.51, besting our call by $0.16, and the year-earlier tally by about 12%. 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's stock price rose nicely.
During the September quarter, Boeing delivered 170 commercial aircraft, compared to 149 a year earlier. This division's operating margin widened by 210 basis points, thanks to lower service costs and research & development expenditures. The company also booked 200 net orders during the interim, which brought its massive backlog to 4,800 planes valued at $345 billion.
The Defense, Space & Security division, despite the uncertainty of the U.S. Defense Budget, put in a decent showing. Revenues were $8.0 billion, up 3%, year over year. However, this segment's operating margin declined from 10.5% to 8.4%, which stemmed from higher costs and a less favorable product mix shift.
Overall, it was a good quarter for Boeing. Looking ahead, we continue to like the company's near- and long-term prospects. Although economic concerns still abound, we think that passenger air travel will continue to increase at a healthy rate over the next several years. As a result, a number of domestic and foreign carriers should possess the financial flexibility and eagerness to replace their aging fleets with new Boeing aircraft. In anticipation, Boeing ought to continue to increase production schedules for some of its most popular models, including the 737 and 777. The company's huge backlog, in our view, should support full production for many years.
The situation should only improve further now that the problems with the new 787 Dreamliner appear to be resolved. During the September quarter, Boeing delivered 23 of these technologically-advanced and fuel-efficient jets, and we continue to believe that the 787 will eventually form the backbone of Boeing's commercial aircraft portfolio. Orders for this plane now exceed 1,000, and management has already announced plans to boost production.
For 2013, due mostly to the third-quarter outperformance, we are raising our share-net estimate by $0.20, to $5.80, which would represent a year-over-year increase of more than 13%. Looking further out, we are adding a dime to our 2014 call, which now stands at $6.60 per share. We also project that share earnings will exceed $8.25 by the 2016-2018 period.
As for the equity, it has continued to perform well. In fact, year to date, the stock price has advanced more than 60%. In comparison, the Dow Jones Industrial Average has registered a gain of about 20% over the same timeframe. More recently, since our September report, Boeing stock is up 20%.
Although we are bullish in regard to the company's prospects, due to the stock's excellent run, we now feel that Boeing shares are richly valued. In fact, the stock is now trading at more than 21 times our 2013 share-net estimate, which is far higher than recent annual results, as well as our projected multiple to 2016-2018. In fact, the issue is now trading well within our Target Price Range for that period. All told, at this time, we suggest that current shareholders consider taking some profits. As for prospective investors, we recommend waiting on the sidelines until a material pullback in price occurs.
Lastly, we continue to urge all interested parties to keep tabs on the actions of Congress and the White House in regard to defense spending. This topic should remain a hot-button issue in Washington, and may cause Boeing to lose some military-related business over the next several years. That said, the company should be able to offset these losses due to its immense commercial business and significant 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.