Shares of Boeing (BA) have taken off today after the airplane maker reported better-than-expected earnings on strong profits in its commercial-aircraft division. Can they stay aloft?
Associated Press The Wall Street Journal has the details on Boeing’s earnings:
Boeing reported a profit of $1.16 billion, or $1.51 a share, up from $1.03 billion, or $1.35 a share, a year earlier. Core operating earnings—which adjusts to exclude pension components related to market fluctuations and other items—rose to $1.80 from $1.55. Revenue increased 11% to $22.1 billion.
Analysts polled by Thomson Reuters recently expected per-share earnings of $1.55 and revenue of $21.69 billion…
For the year, the company raised its per-share earnings estimate to $6.50 to $6.65, from its previously increased estimate for a per-share profit of $6.20 to $6.40. Boeing also affirmed its revenue view.
Boeing credited strong sales of commercial jets to emerging markets, which are building up their fleets to tap into travel by their rising middle class, and in Europe and the U.S, where airlines are upgrading their old airplanes. Margins in its commercial jet division rose to 11.9%, well ahead of Boeing’s own guidance.
Sterne Agee’s Peter Arment and Josh Sullivan applaud the commercial division’s results and thinks Boeing’s shares can head higher:
As expected, 3Q13 EPS beat but even more impressive was BCA margins exceeded expectations despite ramping deliveries of low margin 787s. The power of BA’s cash generation also began to show through in 3Q13 with $2.3 billion of free cash flows. Simple takeaway is stay long BA and we remain buyers at current levels given our long-term targets as the operating performance continues to provide upside to expectations…
There are several catalysts still in front of BA, such as the 777X launch, the 787-10 orders coupled with extension of the 787 accounting block, and a new buyback authorization. BA continued its repurchase program in 3Q13 with 7.6 million shares totaling $0.8 billion (current buyback plan totals $1.5 billion-$2 billion in 2013 vs. $1.8 billion now deployed). This commitment taps into the existing $3.5 billion authorization, which is likely reset towards the end of the year as BA completes its milestones for 2013. The 777X launch will occur in November.
RBC Capital Markets’ Robert Stallard acknowledges the strong numbers, but has some concerns:
The very strong BCA margin in the quarter, way ahead of Boeing guidance, is the key positive surprise in these results - and likely to prompt questions as to whether this is a ‘one off’, or whether such levels can be sustained going forward. With the focus on cash, investors are likely to be happy that Boeing is still doing a good job on cash generation, but with the mountain getting bigger we think investor would welcome a step up in the deployment of cash going forward. The boost in the 787 rate has been widely discussed in the past, though given that it doesn’t kick in till 2016, the benefits of this remains some way off.
Stallard rates Boeing, which has gained 69% this year, a neutral.
Boeing has risen 4.2% to $127.65 today, while jet maker Embraer (ERJ) has advanced 2.4% to $33.77 and BAE System (BAESY) has dropped 0.4%. Lockheed Martin (LMT) has ticked up 0.5% to $130.67 and Northrop Grumman (NOC) has jumped 3.7% to $105.25.
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