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Dow-30 Earnings: Boeing – Fourth Quarter 2013
The Boeing Company, (BA - Free Boeing Stock Report) the world's largest aerospace/defense corporation, once again released better-than-expected financial results. For the December quarter, revenues were $23.8 billion, or 5% higher than our estimate. Share earnings came in at $1.61, besting our call by $0.17 and the year-earlier tally by more than 25%. Continued healthy aircraft deliveries and orders, as well as increased margins, helped fuel the share-earnings performance. As for the equity, despite the good news, the stock moved lower after the announcement, most likely because some feel that 2014 guidance falls short of more bullish expectations.
During the December quarter, Boeing delivered 172 commercial aircraft, compared with 165 a year earlier. This division's operating margin widened 140 basis points, thanks to the higher volume and a more-favorable delivery mix. The company also booked 465 net orders during the period, which brought its backlog to 5,080 planes valued at $374 billion.
The Defense, Space & Security division, despite the ongoing uncertainty in regard to the U.S. Defense Budget, also put in a good showing. Revenues were $4.4 billion, or 9% higher than the year-earlier tally. The operating margin widened by 180 basis points, which can be attributed to a better sales mix and lower research & development expenditures.
Overall, it was a good quarter for Boeing, and closes the books on a banner year for the aerospace behemoth. For 2013, share net was $5.97, which was almost 17% better than 2012's bottom-line performance. Furthermore, the stock easily exceeded the gains registered by the major market indexes during 2013. More specifically, it was the best performer in the Dow, advancing more than 80% during the 12-month period.
Looking ahead, we continue to like Boeing's near- and long-term prospects. We estimate that the U.S. economy will continue to expand in 2014, which should lead to healthy growth in air travel. As a result, a number of domestic and foreign carriers ought to possess the financial flexibility and eagerness to replace their aging fleets with new aircraft. In anticipation, Boeing continues to increase production schedules for some of its most popular models, including the 737 and 777. Furthermore, it appears that the problems with the 787 are now in the rearview mirror, and more of these technologically-advanced and fuel-efficient jets will be pulling up to airport gates on an ongoing basis. The company's huge backlog, in our view, will support full production for many years.
For 2014, at this time, we are keeping our share-net estimate unchanged. Our call of $6.60 is higher than management's guidance of $6.10-$6.30. We also project that profits will reach $9.00 per share by the 2016-2018 time frame.
As for the equity, although we remain bullish in regard to Boeing's prospects, it now appears richly valued. On that note, the stock is currently trading at more than 20 times our 2014 share-net estimate. Due to historically low interest rates and an improving U.S. economy, we expect that stocks, overall, will continue to trade at elevated price-to-earnings ratios. However, in regard to Boeing specifically, we think that the current multiple is not sustainable. That, along with the strong price run-up of late, causes this issue to already trade well within our projected Target Price Range for 2016-2018.
All told, we suggest that current shareholders consider taking some profits. As for prospective investors, we recommend waiting on the sidelines for a better entry point.
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.