Boeing is Set for Takeoff

Sep.13.06 | About: The Boeing (BA)

On September 5th, Alan Mulally, the head of Boeing's profitable commercial plane division, announced that he was joining Ford as CEO. Who wouldn't jump ship for an $18.5 million one time payout?! But have no worries about Boeing. I have spent a significant amount of time with the management of the company -- on all levels -- and Boeing is heading from its current $73 to $90.

All of the employees of Boeing are top notch and the best at what they do. Boeing's future is not dependent on any one person because the entire organization is strong, driven and has the tenured and seasoned employees that most companies don't embrace anymore.

Plus, at the end of the day, quality always wins out. A pilot friend of mine who is a Captain with United Airlines said that flying an Airbus is the equivalent of driving a "thirty year old AMC Gremlin" and that flying a Boeing is a combination of driving a new "Ford 550 truck and a BMW" all wrapped into one automobile.

Prior to 2006, life wasn't looking so good for Boeing. Its rival Airbus was coming on strong, a number of scandals hurt the company’s image and endangered contracts, and the commercial airline business was demanding fewer planes. But, even without Mullaly, Boeing will continue to thrive and I think its stock price is ready to climb.

For one thing, CEO James McNerney seems ready to take his talented team forward and avoid the scandals that hurt the company in prior years. But the primary reason to be optimistic about Boeing is the renewed demand from the commercial airlines; a lot more planes are going to be sold in the coming years, and with its superior planes, Boeing stands to benefit a great deal. To be sure, Airbus will remain a formidable competitor, but virtually everyone knows that Boeing is making the better planes these days.

There is also growing demand for planes in emerging markets, and countries like India and China will help offset future cyclical downturns among American commercial airlines. As it enjoys increased sales, Boeing will also take comfort from its improved margins; the downturn in the commercial airplane sector forced the company to improve its efficiency in ways that will help the company down the road.

The commercial airplane division of Boeing will be especially valuable in coming years as budget constraints start to affect defense spending. The post-9/11 years have been very good for Boeing’s defense-industry divisions, and the company has made the most of the opportunities by winning many contracts. Boeing will continue to do well in this area, but any major growth is more likely to come from the commercial sector.

Boeing’s stock has dropped in the last few months, but revenues grew strongly in 2005 and the first two quarters of 2006 showed steady growth over 2005. I think this trend is going to continue, and this is a good time to get in.

Type of stock:
The largest aerospace company in America, Boeing is poised for real growth.

Price target: Currently at $73, the stock is just about in the middle of its 52-week range. The company’s second quarter results were hurt by more than $1 billion in charges stemming from a settlement and a delay in fulfilling a contract, but with its strong management, excellent technologies and superior customer service, the price should rise to $90 in the next 18 months.

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