Allow This Stock to Take Your Portfolio to New Heights II

Mihir is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The recent crash landing of the Asiana Airlines flight 214 would have been a major setback for frequent flyers with regard to safety. It is not only about this incident, but any other flying accident that sends out shock-waves in the passenger fraternity.

For Boeing (NYSE: BA) however, this accident testified to the quality of design and tenacity of its airplanes, as experts claimed that the design of the Boeing 777 involved in the crash landing helped prevent the aircraft from burning and breaking up, which could have taken more lives. This is good news for the company that has been facing serious technical issues with the 787 Dreamliner since its launch.

The incredible 787 returns

The company announced the return of the 787 in its last earnings call a couple of months back following a rigorous testing program and hours of work devoted by experts from Boeing and other organizations. Apart from this encouraging news, investors also derived fresh optimism from its second quarter delivery numbers. The company reported delivery of 169 commercial airplanes, with the 737 Next Generation, the best-selling commercial jet across the globe, topping the list.

The year-to-date delivery number now stands at 306, implying that the company delivered more than half its jets in the second quarter. This is healthy news for investors because it will have a positive impact on revenue and earnings, which are due in few days.

Delivering an excellent show

As this fool article reports, the Paris Air Show, the world’s largest air show, helped Boeing in expanding its order book. The company released details about orders in the first week of July, which clearly conveyed an increase in numbers as compared to last month. Both Boeing and Airbus, giants in commercial aviation, displayed their mettle at the air show with the motive to book maximum purchase orders for their aircrafts.

The A350, the latest wide bodied jet from Airbus that directly competes with Boeing’s 787 made an appearance at the show. Statistically, Airbus got ahead of Boeing as it confirmed purchases of approximately $68.7 billion as compared to Boeing’s $66 billion over the first four days of the show.

Extension of the 787 family

Boeing announced its latest addition to the 787 family, the 787-10 Dreamliner, at the Paris air show, claiming it to be the most efficient jet liner. The ever increasing demand in commercial aviation has necessitated the presence of fuel efficient jets that could travel long distances. The company built its range of 787 jetliners keeping this objective in mind.

Fuel-efficient jets enable airline companies to charge lower fares to its customers, which is a much needed strategy to combat fierce competition. This has sparked a huge battle between Airbus and Boeing, both competing to take a commanding position for the supply of such jets.

Airbus’s A350 XWB has offered tough competition to the 787 in terms of efficiency and seating capacity. Its debut flight was a hit, helping Airbus garner more than 69 orders for the jet, totalling $21.4 billion. Though Boeing experienced a bumpy ride with the 787, its dedicated rework has paid off with the FAA approving the changes made to the aircraft. Thus, Boeing is back into the fight, stronger than before.

Other rivals

Boeing also did a good job in the defense segment as indicated by its delivery numbers. In this space, it competes with Lockheed Martin (NYSE: LMT), which designs and manufactures military aircraft. Recently, it bagged a contract worth $138.5 million to provide Communications Technical Support Services, or CTSS, to the U.S. Air Force Central Command. The company is a leader in defense technology and has received such big contracts earlier.

It has a robust dividend history with current dividend yield of about 4.23%. However, its price to book value ratio is at a stunning 114 as compared to Boeing’s 21. There are no serious concerns around its business prospects, but such a high P/B ratio indicates that the market can greet it with a correction.

United Technologies (NYSE: UTX), which produces aircraft systems that control essential functionalities, reported a strong first quarter in 2013. Its earnings were up by 6% to $1.39 per share. A better than expected growth in the Climate, Controls and Security business helped achieve earnings that exceeded management’s expectation.

Like Lockheed, this company has also been generous in paying dividends as it recently announced a quarterly dividend of $0.535 per share. Besides the dividend, it has also created shareholder value via reasonable capital appreciation. Its stock has gained around 30% in just a year.

Final words

The last time I wrote about Boeing, it had rallied approximately 30% with almost a month left before its first quarter earnings. A robust first quarter wherein it reported a growth of 24% in core earnings per share to $1.73 per share helped the price to rally further to current levels.

The decision to increase production rates proved effective for the company as it delivered 169 commercial jets in the second quarter. Technically, as well, Boeing is a robust company that has a strong financials. Being a heavy manufacturing company, it has done a commendable job in keeping down its D/E ratio to around 1.3, thereby reducing the cost of debt servicing.

While Boeing has successfully maintained a stable dividend per share, its dividend yield number has been on a continuous decline because of increasing share price. However, it goes without saying that it has made up quite nicely for it via massive increase in the share price.

Boeing is a fundamentally and technically strong company. Though, there was a brief rough patch, it has managed to get back on track in time. Demand in the commercial airline industry is growing gradually and being the colossus that Boeing is, there is a lot to be gained from investing in this stock.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Mihir Mehta has no position in any stocks mentioned. The Motley Fool owns shares of Lockheed Martin. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus