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Summary

  • Boeing beat analyst estimates of its EPS and revenues. The revenue growth of 8% was backed by the increased manufacturing rate that is expected to increase further.
  • Backlog and new orders remained strong.
  • Boeing’s largest segment, Commercial Airplane, experienced a revenue increase of 19%. Next generation 737, with its superior fuel and operating cost efficiency, will keep driving Boeing’s earnings.
  • Boeing’s price is still attractive for long-term investors that want to capture the forecasted growth in the aerospace industry. Analyst valuations give an overall very positive outlook.

Boeing Beats Analyst Estimates

Analysts were expecting aerospace giant Boeing (NYSE:BA) to deliver an EPS of $1.56, but BA beat analyst estimates by 20 cents, with an EPS of $1.76. BA produced revenue of $20.5 billion again, beating analyst estimates of $20.2 billion.

Revenue growth is strong at 8%, backed by robust deliveries. There was a decline in net earnings of $1.1 billion last year compared to this quarter's earnings of $965 million, reflecting a decrease of 12.7%. One culprit behind this plunge is the accounting write-off of $330 million related to retirement plans. There was also a one-off tax credit charge that had inflated the revenue figure in 2013.

The backlogs also remained strong, with $19 billion of net orders during Q1. End of quarter backlogs decreased by $1.1 billion to $439.8 billion compared to the backlogs at the end of last year.

Thriving Commercial Airplane Segment

Commercial Airplane, the largest segment of Boeing, makes up 62% of revenue and 72% of operating profit. During the quarter, Boeing delivered more jets compared to last year, and this increased manufacturing rate has paid off, as the revenue of this segment increased by 19%. The segment contributed $12,737 million, and Boeing managed to deliver 161 airplanes.

Production of the 737 has picked up in the month of April and has reached 42 jets per month. Boeing is further targeting a rate of 47 jets per month by the year 2017 to cater to the growing demand for single-aisle aircraft in the coming years. The production rate of the Dreamliner 787 has improved to 10 per month. The Dreamliner was suffered owing to concerns over lithium batteries catching fire last year. The operating margin of the segment has increased to 11.8%, with an improvement of 40 basis points.

Owing to superior fuel efficiency and lower operating costs compared to competing planes, the 737 Next Generation model remained the most delivered plane, with 115 deliveries. There were 24 deliveries of model 777, 18 deliveries of Dreamliner 787 and 4 deliveries of 747. Dreamliner 787 has shown progress compared to last year, since there was only one delivery a year ago. The 737 Next Generation model is expected to remain a dominant revenue driver for Boeing in the coming years. This quarter has seen a robust demand, and Boeing received a net order for another 235 planes.

With the robust growth, especially in the emerging markets, expected by economists in the coming years, airliners are expected to continue to place orders for planes both to expand their fleets and to replace old jets. Although there is an emergence of new jet manufacturers that would further heat up the competitive environment, Boeing, as a leader of the industry, is expected to continue to grab the lion's share.

Contracted Boeing Defense, Space & Security

This segment experienced a decrease in revenue of about 6% compared to last year. Q1 revenue from this segment decreased to $7,633 million. The only sub-segment that showed a growth of 6% in revenue was Global Services & Support [GS&S)]. The Boeing Military Aircraft [BMA] sub-segment performed poorly, and revenue fell by 13%. There was also a decrease in revenue by 4% in the Network & Space Systems [N&SS] sub-segment. The operating margins also decreased from 10.3% to 10.2%. This segment of Boeing is not expected to show a considerable growth in the coming years, as it has shown in the past decade. U.S. engagement in wars in the last decade drove growth for this segment, but in the coming years, this growth is not expected to replicate, owing to a different geo-political situation.

Share Repurchases

During Q1, Boeing returned $2.5 billion to shareholders through a repurchase of 19.4 million shares. In the last decade, Boeing paid dividends each year, and the dividends increased at a CAGR of 10.8%. Apart from two difficult years, Boeing has increased dividends each year in the last ten years.

Relative Valuation

Currently, Boeing's price/earnings ratio is 17.20, which is lower than the 20.78 times P/E ratio of the industry and 21.74 of S&P 500. The current level of Boeing's PEG ratio is 1.66. It is higher than the industry and the sector, but it is lower than the S&P 500. On the whole, Boeing's shares still seem to be attractive for long-term investors that want to capture the growth that the aerospace industry is expected to enjoy in the coming years.

Source: Yahoo Finance

The following is the summary of the valuation of Boeing's stock made by twenty brokers. Owing to Boeing's performance so far and the positive future outlook, analysts in general are very optimistic. The mean target price presents a price return of 17.8%, and the median target price represents a return of 20%. The highest target price represents a return of about 35% and the lowest target price estimate is $127, with a downside of -2.2% on the current price. This analysis paints a very optimistic outlook.

Source: Yahoo Finance

Conclusion

Long-term investors should consider taking exposure in the aerospace industry through Boeing, since it is expected to experience a sustained growth in the coming years. Boeing is going strong as depicted by its recent quarter performance, and it is expected to continue to lead the industry. It consistently pays out dividends, and its price is also attractive at the current level. Investors should consider taking a position in Boeing before its share price goes higher.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.