This is Why You should Invest in Boeing as a Growth Stock
John is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Boeing (NYSE: BA) has had a very rough go of it since the first of May when it peaked at around 77. Since then, it has dropped as low as 67. That is a significant drop in a short period of time for a company in an industry that is busting at the seam with orders because there is a real hunger for aircraft right now. This dip may be a struggle for Boeing, but it may also be an opportunity for long term investors.
Sales Have Never Been Better!
- Boeing delivered 49 planes last month, bringing the year’s total to 237 and has had 420 net orders through May. Without spending too much time talking about this, take a look at a summary of what Boeing is doing:
- Boeing is set to sign a $2 billion deal with Indonesian Airline Lion Air for 10 Dreamliners.
- The largest passenger jet ever made by Boeing will debut on its Frankfurt-to-Washington route. The 747-8 is the first of 20 ordered by Lufthansa.
- Avolon took delivery of the first of 12 Next-Generation 737-800s ordered in December 2009.
- Boeing has another 30 commitments for the 747-8I it will convert to orders soon.
Other airplane manufacturing companies are also having good years. Cessna Aircraft, a subsidiary of Texton (NYSE: TXT) is helping the conglomerate with double digit sales growth in a slow economy. Lockheed Martin Corp (NYSE: LMT) recorded sales and profit increases also. They may be military contract oriented, but Lockheed cited improved sales from its F-35 Joint Strike Fighter, C-130J transport plane and F-16 fighter jet programs
Its aircraft is good, that’s why orders continue to build. With the fuel prices varying so often, airline companies are concerned about fuel pricing. As an example of its quality, the 737-800 work horse continues to increase in popularity. It is well documented as reliable, fuel efficient, and provides great economical performance as it is selected by carriers all over the world because of the flexibility of the markets it can serve. It can fly farther consuming less gas that its competitors.
If things are so good for Boeing, why has the stock fallen so much? Realizing there is an economic slowdown, Boeing still has years of orders to fill. It is not like it is unable to sell anything. The only significant slow down has been in freight orders. This of course is understandable. 2011 was the best year on record for jet-freighter orders with 79 planes valued at $19.5 billion. This may not be the case in 2012 since it hadn’t logged a new freighter deal in 2012 through May. By May of 2011 it had sold 13 cargo planes whose catalog prices totaled $3.75 billion.
International air-cargo shipments fell 2.5 percent worldwide through April. Europe and Asia were the worse at 4.6% and 4.5% respectively. FedEx Corporation (NYSE: FDX) is retiring 24 aircraft as the company tries to align its U.S. domestic air cargo capacity with slowing demand. This is not something that is just happening but has been progressing with the slower economy. Even as early as last October, United Parcel Service (NYSE: UPS) reduced its air capacity from Asia citing a slowdown in US consumer spending and the realted shipping of goods from China.
The Real Problem May be With the Dreamliner
The Dreamliner has needed additional work and has suffered long-delays which have revealed the program's enormous costs. But Boeing is looking for ways to increase output and cut costs on the Dreamliner program, which Boeing hopes will sustain the company in future decades.
That being said, the present reality may be challenging for the company’s bottom line. The initial production of the airplane fell three years behind schedule do to a number of unforeseen difficulties including engineering snags and supplier problems as it rolled out the first models. It has already made deliveries but some analysts believe that the overage costs of the first airliners may be costing Boeing as much as $100 million per plane. Now, Boeing should get better and better as time progresses on the development of these planes. I believe they have been producing 3.5 per month on average and have goals to get to 5 by the end of 2012 and 10 by 2013. So the cost should go down and profits go up as time progresses. These difficulties are a temporary phenomenon.
Speedier production and deliveries would help the company shrink a backlog of 800+ orders for the 787, which lists for as much as $227.8 million. So while Boeing’s future still looks very bright and it is a great candidate for a long term growth stock, the short term may not bring solid numbers to the company’s bottom line as it absorbs initial production overage costs.
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