Boeing is part of aviation folklore, ushering in the age of jet travel over 50 years ago. It is the world's biggest plane maker and is spearheading another boom in aircraft manufacture. This year may one of its best, yet its shares, like the cost of a flight on one of its original 707s, still look cheap.
- Order backlog at all-time high
- Another year of record revenue expected
- Commercial plane sales to rise by 37 per cent
- Cash flowing in
- Exposed to US defence cuts
- Pensions crimp earnings forecast
Of course, times have changed since PanAm dominated the transatlantic routes and put Boeing on the map, and for the better. Last year, Boeing's commercial aircraft division delivered 477 planes, most of them 737s, worth over $36bn (£23bn). This year it will hand over as many as 600 jets and generate close to $50bn.
That, however, is just the start. Boeing estimates that between 2011 and 2030, aircraft makers will deliver 33,500 planes worth over $4 trillion. It's hard to dismiss those numbers. High oil prices have increased the urgency for airlines to use fuel-efficient planes. And half the new jets will end up in emerging markets, especially Asia and the Middle East.
Boeing's 787 Dreamliner has grabbed headlines. Half the wide-body jet is built using lightweight carbon composites that can cut fuel costs by 20 per cent. The first was delivered to All Nippon Airways in September. True, that was over three years late; still, Boeing has orders for over 800 and hopes to build about 40 in 2012. Even if it hits production targets, it would take about seven years to clear the current order book.
BOEING (BA.) | ||||
|---|---|---|---|---|
| ORD PRICE: | $75.50 | MARKET VALUE: | $56.2bn | |
| TOUCH: | $75.45-75.50 | 12-MONTH HIGH/LOW: | $80.65 | $56.01 |
| DIVIDEND YIELD: | 2.3% | PE RATIO: | 17 | |
| NET ASSET VALUE: | $4.72 | NET DEBT: | 30% | |
| Year to 31 Dec | Turnover ($bn) | Pre-tax profit ($bn) | Earnings per share ($) | Dividend per share ($) |
|---|---|---|---|---|
| 2008 | 60.9 | 4.00 | 3.68 | 1.60 |
| 2009 | 68.3 | 1.73 | 1.89 | 1.68 |
| 2010 | 64.3 | 4.51 | 4.50 | 1.68 |
| 2011 | 68.7 | 5.39 | 5.38 | 1.68 |
| 2012* | 79.4 | 5.30 | 4.52 | 1.76 |
| % change | +16 | -2 | – | +5 |
Beta: 1.3 *Deutsche Bank forecasts (earnings are not comparable with historic figures) £1=$1.58 | ||||
So the biggest problem is how to deliver enough planes. A target of 10 787s a month by the end of 2013 is ambitious. Happily, however, the competition is slipping. The rival Airbus A350 has been held up and deliveries won't begin until mid-2014, possibly even later.
Boeing's short-haul planes should also play catch up in 2012 now that management, after some dithering, has decided to fit fuel-saving engines to the 737. Orders and commitments have topped 1,000 already, including an $11.4bn order from Norway for 122 737s, including 100 of the new version. With an updated long-range 747 jumbo jet also contributing, the backlog at Boeing's commercial planes division stretches to more than 3,700, worth a record $296bn.
And results are beginning to reflect the potential. Better than expected profits for 2011 were driven by a 31 per cent increase in sales of commercial airplanes during the fourth quarter to $10.7bn. Boeing tips group revenue to grow 16 per cent in 2012 to $80bn.
The cash is pouring in, too, so net debt fell two-thirds to $1.1bn, and operating cash flow grew a larger than expected 36 per cent to $4bn. Boeing expects over $5bn operating cash flow in 2012 as completion of the 787 project means spending on development will fall to perhaps $3.3bn in 2012 from nearer $4bn last year. Free cash flow, meanwhile, should increase to $3bn from $2.3bn.
That said, eyebrows were raised when Boeing lowered earnings guidance for 2012 to between $4.05 and $4.25 a share from underlying EPS of $4.81 in 2011 – that was largely due to an extra 83¢ per share of pension costs. Still, analysts at Deutsche Bank think Boeing's estimates for profit margins from its commercial airplanes are too cautious, leaving plenty of room for earnings upgrades. "We expect EPS to ultimately come in far higher than guidance," adds JPMorgan.
Then there is the defence industry. Sales there were flat last year at $32bn – 47 per cent of the group total – although F-15 fighter jets and Chinook helicopters grew military aircraft sales by 5 per cent to $14.9bn. Expect ongoing weakness at network and space systems to drag divisional sales down to $30bn in 2012; profit margins will be lower, too. But Boeing wants $15bn of military sales in 2012, has $60bn of work lined up, and should win more business overseas to cover cuts to US defence spending.
