The Boeing Dreamliner Brings the New High
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The Boeing Company (NYSE: BA) has seen rising stock prices over the last two months. Investors are seeing greener pastures with the approval of the Dreamliner to resume active use.
The start of the year was challenging for Boeing’s operations, but not its stock price. The Federal Aviation Administration ordered all Boeing 787 Dreamliners be grounded temporarily on January 17th, 2013. This issue was due to a battery fire risk in the plane. The market responded with a 3.4% intraday and 2.1% after market drop in stock price on the day of the announcement. It is estimated that Boeing was losing $50 million every week the Dreamliners were grounded.
The FAA has approved a fix for this problem and there are potential negotiations in progress for Ryanair Holdings (NASDAQ: RYAAY) to purchase 200 787s for approximately $18 billion. Ryanair’s stock price is up 15.38% over the last year.
If this goes through, this is great news for Boeing but also great news for Ryanair. Ryanair operates passenger airline services in the United Kingdom, Europe and Morocco in northern Africa. It has 1,500 flights per day on 294 Boeing 737 planes. The 737 can carry 115 passengers and has a range of 2,268 nautical miles. The 787 on the other hand can carry up to 242 passengers and has a range of 8,200 nautical miles. Ryanair, if they purchase the new aircraft, can carry more passengers, further distances and at a faster speed. The company’s capital expenditures have been declining over the last 4 years from $998 million to $318 million in 2012. This deal with Boeing will be a major expense, but has the opportunity to drastically improve their daily operations.
Boeing has increased their production rate for 2013. It currently has over 4,200 aircraft in back order. It will take over 7 years for Boeing to fulfill all of these orders. For the 737 aircraft, back orders have been increasing since 2011
Boeing is increasing this production rate to 38 planes per month this year and to 42 planes per month in early 2014. This will allow the company to deliver planes faster and increase short-term profitability. Profit growth is very likely in the next year for Boeing. Demand is increasing for their aircraft due to rising air travel in North America and in Europe. Boeing has even surpassed Airbus with regards to total orders.
With the Boeing 787 Dreamliner being approved by the FAA and the increased production rate, 2013 earnings per share should increase to $6.30 per share over 2012’s $5.11. With the current market discount rate of 6.05%, the 1 year price target for Boeing is $104.13.
As Boeing increases production and order shipments, this growth trickles down to major suppliers. One in particular is United Technologies Corp (NYSE: UTX). United Technologies supplies Boeing with engine parts and other components for aircrafts. The aircraft industry is anticipated to bring $4.5 trillion in revenue over the next 20 years. United Technologies will benefit from this growing sector. Investors don’t need to wait, though. With Boeings increase in production rates, United Technologies should see a burst in short-term revenues. This year’s total earnings for United Technologies could be as much as 13% higher than last year.
Austin Higgins is the Principal Consultant for Avant Venture Group. and focuses on building businesses through innovation, growth and investment. Read his company's blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.
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