Boeing (NYSE:BA) reported decent second-quarter results Wednesday, but we view such a quarter as a non-event for the aerospace giant. We maintain that the future of this jet maker rests on its ability to deliver its 787 and the profitability to be garnered on this program, which we forecast to be practically nil out of the gates.
Management slightly lowered its forecasts for deliveries this year due to a short-term blip in (you guessed it) its 787 program, but again we view this change as largely immaterial to investors. Interestingly, total backlog fell sequentially, but we view this more as weakness in Boeing’s narrowbody strategy than in the broader commercial aerospace segment.
We were pleased with the operating cash flow performance in the quarter, and Boeing is on pace to generate its target of $2.5 billion-plus during the year. Due to the flexibility of program accounting, we think monitoring cash flow at the aerospace giant is paramount and think a DCF process is the best way to estimate Boeing's intrinsic value. The jet maker upped its full-year earnings per share guidance by $0.10 to $4.10 at the high end of the range.
We maintain that Boeing looks fairly valued on a DCF basis and that there may be upside as a result of the coming boom in commercial deliveries over the next few years. However, we prefer opportunities in the supply chain, which we outline here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.