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Boeing Flies Higher With Global Growth (NYSE:BA)

03/25/10 by  
Filed under Bourbon & Bayonets

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Boeing is on the short list of great American companies. I remember seeing mockups of the new 777s in Everett, Washington in 2006 inside the largest building by volume in the world. Boeing’s heritage as the premier US-based airplane manufacturer is impressive.

The process to land the $50 billion contract for a new U.S. Air Force tanker has been contentious with one major U.S. defense contractor, Northrop Grumman (NOC) recently bowing out. That puts Dow component Boeing (BA) and Europe’s EADS in the catbird’s seat to win the lucrative contract. This could be a big win for Boeing. Even without the Air Force, there is still a lot to like about Boeing’s stock.

Boeing also supplies airplanes and related components to commercial airlines. While the company isn’t a monopoly on this front, it really only has one legitimate competitor: Airbus. With the global economy improving, at least for now, the airline business is looking up. That’s good news for Boeing. On Tuesday, Boeing said it sees global passenger traffic returning to its 2008 levels and expects orders for new airplanes to pick up in 2011-2012.

Latin America is a key market for Boeing. If air traffic there doubles over the next decade, it should lead to more than 1,600 new orders for the industry over the next 20 years.

Boeing (NYSE:BA) is boosting production to meet the increasing demand. The Chicago-based company said it will begin producing seven 777s a month by mid-2011 instead of early 2012. Boeing also plans to produce two new 747s a month by mid-2012, up from an average of one-and-a-half. Boeing intends to recapture the title of world’s largest commercial airplane producer, a crown worn by Airbus since 2003.

Analysts seem to be taking note. On Monday, Barclays Capital said Boeing is beginning a multi-year growth in deliveries, revenue and profits, noting that the stock should rise on the back of higher earnings and higher valuations. Barclays raised its price target on Boeing to $87. Their 2011 EPS estimate is $5.25 a share and $6.25 in 2012. Oppenheimer chimed in as well, upgrading Boeing to “outperform” from “underperform,” while raising its price target to $80. At either $80 or $87, Boeing still has plenty of room to run from its current price of around $72.

The bottom line is that Boeing is one of the most cyclical stocks around. You probably don’t want to own it when the economy is bad, but a recovery is a different story. Waiting around for the market to acknowledge the strong economy may mean missing the best moves a stock like Boeing has to offer. We like Boeing this time around, and we’re adding it to our picks of the week.

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