Can Airline Manufacturers Make You Rich?

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

On Monday, Le Bourget (The Paris Airshow) kicked off with the likes of Boeing (NYSE: BA) and European Aeronautic Defence and Space Company (NASDAQOTH: EADSY.PK) (EADS), which brought their aces to please the crowds and rack up deals worth billions. EADS is the parent company of Airbus, Astrium, Cassidian and Eurocopter. By the end of this event, expect the aerospace industry to be worth significantly more than the week before; furthermore, expect stock prices of these companies to take off as well. In this article I will analyze the best aircraft manufacturing stocks for my readers. Along with giving a commercial comparison, the vast military-related product range of EADS compels me to include Lockheed Martin (NYSE: LMT) in this article to make it a fairer analysis. 

Recent events

At the Paris Airshow, fierce competition exists between Boeing’s Dreamliner and the latest introduction by Airbus – the A350. The A350 took its first flight last week and is expected to fly at the airshow too. For the first time, Boeing’s carbon-fiber Dreamliner is being given competition in the same category. The Airbus A350 is a long-range, mid-size wide body aircraft made out of carbon-fiber, just like its American counterpart. Just like the Dreamliner, the A350 is said to be 25% more efficient – but unlike the Dreamliner, Airbus hopes that its latest jewel will not have embarrassing troubles and failed promises. The Dreamliner entered service three years late and, more recently, was grounded due to short-circuiting faults with its battery. All this has caused a negative perception about Boeing as a brand – and with the A350 waiting in the wings, this has provided the perfect opportunity for Airbus to pounce.

On day one alone, Airbus secured orders worth $18.16 billion for its aircraft, while Boeing languished far behind at $6.06 billion. EADS as a whole is doing very well thanks to its military operations, even though the company recently backed off its goal of generation $10 billion in non-Airbus revenues from the U.S market by 2020. In Q1 2013, more than 75% of the company’s revenue came from Airbus sales.

Boeing, on the other hand, is continuing with the production of its 784 airliner due to high demand from the Middle East and Europe. Boeing is being pushed by airline companies to expand its 784 capacity, but Boeing’s reticence lies in the fact that this move might affect its Dreamliner sales, which is positioned as a mid-sized, long-range aircraft. The Dreamliner’s sales have not been amazing, but are slowly picking up with time. While maintaining output of the 784s, increasing rollout of 777 Dreamliners is pushing Boeing’s capacity to the maximum. Perhaps this is why they are employing robots to boost the 777s’ output.

On the military front, Boeing, EADS and Lockheed Martin are all vying for the biggest orders. The military divisions form a much smaller part of operations for Boeing and EADS, while Lockheed Martin specializes in providing military solutions. The headline at the moment for military orders centers around a $7 billion order of stealth jet fighters to South Korea. The European Aerospace Defense and Space Company announced a $2 billion cash investment package to help kick start a South Korean fighter jet project known as KF-X, only if EADS is chosen for the 60-plane advanced fighter deal worth $7.35 billion. This is on top of its promise that 53 of the 60 planes will be assembled locally.

Tracking financials

<table> <thead> <tr><th> <p><strong>Indicator</strong></p> </th><th> <p><strong>Boeing</strong></p> </th><th> <p><strong>EADS</strong></p> </th><th> <p><strong>Lockheed Martin</strong></p> </th></tr> </thead> <tbody> <tr> <td> <p><strong>Market Cap</strong></p> </td> <td> <p>$78.2 bil</p> </td> <td> <p>$47.5 bil</p> </td> <td> <p>$34.8 bil</p> </td> </tr> <tr> <td> <p><strong>Price/Earnings ttm</strong></p> </td> <td> <p>19.3</p> </td> <td> <p>26.2</p> </td> <td> <p>12.5</p> </td> </tr> <tr> <td> <p><strong>Price/Book</strong></p> </td> <td> <p>10.5</p> </td> <td> <p>3.7</p> </td> <td> <p>113.6</p> </td> </tr> <tr> <td> <p><strong>Net Income Growth (3 Yr Avg.)</strong></p> </td> <td> <p>43.8</p> </td> <td> <p>-</p> </td> <td> <p>-3.2</p> </td> </tr> <tr> <td> <p><strong>Revenue Growth (3 Yr Avg.)</strong></p> </td> <td> <p>6.2</p> </td> <td> <p>9.7</p> </td> <td> <p>2.4</p> </td> </tr> <tr> <td> <p><strong>Dividend Yield</strong><strong>, %</strong></p> </td> <td> <p>1.80%</p> </td> <td> <p>1.05%</p> </td> <td> <p>4.11%</p> </td> </tr> <tr> <td> <p><strong>Net Margin % TTM</strong></p> </td> <td> <p>5.0</p> </td> <td> <p>2.3</p> </td> <td> <p>6.0</p> </td> </tr> <tr> <td> <p><strong>Debt/Equity</strong></p> </td> <td> <p>1.1</p> </td> <td> <p>-</p> </td> <td> <p>20.2</p> </td> </tr> <tr> <td> <p><strong>Return on Equity</strong></p> </td> <td> <p>65.4</p> </td> <td> <p>13.7</p> </td> <td> <p>302.4</p> </td> </tr> <tr> <td> <p><strong>Current Price</strong></p> </td> <td> <p><strong>$103.22</strong></p> </td> <td> <p><strong>$57.86</strong></p> </td> <td> <p><strong>$108.58</strong></p> </td> </tr> </tbody> </table>

 I believe all three of these companies are essentially good to invest in, but as the figure above illustrates, I would put my money in EADS due to its proven price appreciation over time. This holds true now more than ever, as the latest manifestation of European engineering takes flight – I expect it to take the share price up along with it to 30,000 feet.

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Marina Avilkina 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!

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