Tags: Boeing | declining | defense | BA

Boeing Juggles Economic Upheaval, Declining Defense

By    |   Thursday, 17 May 2012 04:44 PM

Boeing (BA) is a big player in the global aircraft business, comparable only to its direct competitor in Europe, Airbus. The firm has had to juggle pressure from the global economic upheaval and declining U.S. defense budgets, yet analysts see growth ahead in emerging country demand for its smaller planes.

Boeing is a major aerospace firm operating in five segments: commercial airplanes, defense including military aircraft, networks and space systems, and global services and support, and Boeing Capital, which provides financing for commercial aircraft purchasers.

Boeing is best known for its passenger jet building, including the 737 narrow-body model and the 747, 767, 777 and 787 wide-body models.

“Development continues on the 787-9 derivative. In the third quarter of 2011 we launched a variant of the 737 that will feature new more fuel efficient engines — the 737 MAX,” management said in a recent filing.

As for defense, the company’s primary customer is the U.S. Department of Defense, at 76 percent of 2011 segment revenues. “Other significant revenues were derived from the National Aeronautics and Space Administration (NASA) and international defense markets, civil markets and commercial satellite markets,” Boeing said.

The company spends billions annually on R&D. As of the end of 2011 it had approximately 171,700 employees.

“Our strategy is centered on successful execution in healthy core businesses — commercial airplanes and Boeing Defense, Space & Security (BDS) — supplemented and supported by Boeing Capital Corporation (BCC),” management said recently. “Taken together, these core businesses have historically generated substantial earnings and cash flow that permit us to invest in new products and services.”

Boeing has a market cap of $54.19 billion in a sector, aerospace and defense, where the average company size is $5.61 billion. Its trailing 12-month P/E ratio is 12.56 and its five-year projected price-to-earnings-growth (PEG) ratio is 1.14, compared to 0.87 for the sector.

Its projected earnings per share growth for the coming year is 24.24 percent, compared to a sector average of 16.36 percent.

Emerging growth

Analysts are generally positive on Boeing, with buy or outperform calls in from BB&T, Citigroup, Morgan Stanley, Deutsche Bank, Goldman Sachs, Standard & Poor’s and Jefferies.

“We see several factors benefiting the shares. We expect emerging economies in Asia and the Middle East to continue to grow strongly, which should sustain demand for narrow-body aircraft, supporting Boeing's total backlog of over 4,000 aircraft as of March 2012,” S&P analysts wrote recently.

“In addition, U.S. airlines continue to take deliveries to improve fuel efficiency of aging fleets. Further, we expect the production ramp of the 787 (full production is targeted for 2013 year end) to act as a catalyst, with about 850 aircraft recently on order.”

Boeing next reports on July 25.

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