Sunday, April 4, 2010
The Boeing Company
The Boeing Company is the world's largest aerospace and defense company. The company operates in over 90 countries and claims the title of America's largest exporter. Its has three divisions: commercial airplanes (46.4% of revenue), Integrated Defense Systems (IDS) (52.6%), and Boeing Capital Corporation (BCC) (1.15%).
The 787 has had the most successful launch of any new commercial airplane in Boeing history. Boeing just reported having 892 firm orders from 57 different customers. The Dreamliner's popularity is largely due to its cost efficiency: by replacing traditional materials with carbon-fiber-reinforced plastic (which is stronger than steel and lighter than aluminum), Boeing has created an aircraft that will consume 20% less fuel than predecessor 767. But despite the promise of the 787, challenges still exist. Production delays are common in commercial airplane manufacturing, especially when a large portion of component parts are outsourced.
Company website: http://boeing.com/
Key Statistics
| Revenues | $ 68.3 billion |
| EBITDA | $3.75 Billion |
| Net income | $ 1.31 Billion |
| Operating margin | 2.74% |
| Revenue Growth | 12.1% |
Reasons to buy (Bulls)
Short term:
- 25th March 2010: Boeing Production Rate Increases Accelerated to Meet Customer Demand. Future looks promising.
- 24th March 2010: Boeing Launches Commercial Security Products at International Security Conference
- 11th March 2010 : US Air Force Increases Order for Boeing-built Joint Direct Attack Munition Kits ($1.3 billion)
Long Term:
1. Recent bad news belies Boeings future growth
The recent loss of the U.S. Air Force tanker contract and announced delays in the first deliveries of the new 787 jet have pushed BA stock down to very attractive levels considering its future prospects. This has been revoked and BA stands in good stead once again to win the important military deal. Moreover, Boeing has a $327 billion order backlog. Orders have been added at record levels for the last 3 years. Profit margins and ROE are also improving. Analysts predict $5.94 per share earnings for 2008 and $6.93 for 2009 (Source: Reuters.com) compared to $5.25 for 2007. The $1.60 dividend is sure to be increased.
2. Huge Backlog
Boeing has a $327 billion order backlog. Orders have been added at record levels for the last 3 years. Count of 3700 planes.
3. BA's products are built to last
Boeing products are built to last and the government knows it. Boeing's B-52 bombers, built between 1952 and 1962,[1] are still flying and projected to last until 2040.[2] The history of Boeing's product quality will make it easy for the company to generate big earnings as other companies are forced to make significant (and expensive) innovations to encroach on Boeing's market share.
Reasons to Sell (Bears)
- Analysts expect new short haul flights where 787 might not sell
- 53% of sales come from Defence Systems . (85% is US Defence). So, reduced levels of global threat and changes in foreign policies could have a negative effect on the budget resulting in reduced profits.
Long term
1. Boeing to Recognize Charge Associated With Health Care Law
Boeing today announced that it expects to recognize an income tax charge of approximately $150 million as a result of the recently enacted Patient Protection and Affordable Care Act, as modified by the Health Care and Education Reconciliation Act.
2. UNION NEWS
787 plane will NOT fly by end of year, will be lucky if it flies by mid 2010. BA MUST deliver 450 planes just to break even at this point. STILL has major union problems,
3. Weakened Consumer Demand for Travel Hurts New Aircraft Sales
Because of the impending global recession, airlines worldwide are cutting new aircraft orders because of lower demand for travel. For example, in December 2008, China's Civil Aviation Administration announced that it was urging its airlines to cancel or postpone new aircraft orders for 2009. During the first two months of 2009, BA had a net total of minus ten new orders - thirty-two orders for 787 jets were canceled during the month of February alone
4. Obama administration likely to have negative impact on BA
Now that Barack Obama has taken the oath of office, it is very likely that his policies will have a negative impact on Boeing. First of all, Boeing produces the F-22 fighter jet with Lockheed Martin, Pratt & Whitney, and the US Air Force;[1] Obama is currently deciding whether or not to cut funding for the jet.[2] Because Obama has stated his intention to review the federal budget on a line-by-line basis,[3] it seems very likely that he will decide to cut the F-22 budget or shift to more competitively-priced alternatives. In light of his history of questioning the competitiveness of existing Boeing contracts,[4] this outcome seems especially likely. Other unforeseen defense-related budget cuts that will hurt Boeing seem likely, as well - Jim Albaugh, chief of Boeing Co.'s Integrated Defense Systems unit, believes the federal defense budget will dwindle because of economic pressures.[5]
References
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