Gotta Love the Boeing Backlog

How can you not admire an order backlog equivalent to four years of production? Though the competition will eventually sort out its problems, at present Boeing (BA) seems poised to maintain this backlog for another year. Strong overseas demand is definitely contributing to the current state of affairs.

Airbus seems to have the mega-jet sowed up for now and is busy unraveling a few knots. As Embraer (ERJ) encroaches on the smaller 50 to 150 seat mid range jets Boeing is betting that it can waltz away with 150 to 500 mid and long range markets. The rising star is the all new 787 Dreamliner. The bulk of the plane is manufactured outside the U.S. making the 787 Dreamliner less sensitive to dollar devaluation. Normally, dollar devaluation would help Boeing compete with Airbus on pricing. Apparently, Boeing doesn't need any assistance right now.

For the first six months revenues are up to $32.4 billion from $29.3 billion. Third quarter revenues should continue this trend though fourth quarter is going to be a tough one to beat on a YOY basis. Cash flow has truly been the name of the game here. Boeing has reduced long term debt from $13.3 billion in 2003 to $8.2 billion in 2006; a 38% reduction. Over the past two and a half years while reducing the share count by 4.5%, Boeing increased the dividend by 50%, now at $1.40 a year. It isn't clear if the company will emphasize share buy-backs over the next three years or opt to increase the dividend substantially. As less capital is required to maintain revenue growth, Boeing will have to decide which approach better enhances shareholder value. We should all have such problems!

The commercial aircraft segment [BCA] turns in just under half the revenues and profits. The only foreseeable risk stems from the integrated defense segment [IDS] that is second in size only to Lockheed (LMT). This is the fly in the ointment, as we anticipate some downsizing in U.S. government spending over the next three years. As budgets shrink, the competition between LMT and BA could become more intense than it is today. In addition, should a Democrat (Hilary Clinton?) prevail in 2008, there is no telling what BA's IDS and LMT will do, short of kamikaze (committing suicide) - just kidding. Chances are that there will not be a significant overall change.

Once the 787 is in the air, this stock could fly above the evaluation line and remain airborne indefinitely.

Disclosure: No conflicts. Estimated 2007 EPS should be just shy of $5.00.

Comments

[CevicheFundPartners LP]

St is pressuring the stock b/c of order push outs -- of course, revs + cash flow are still there, it is just that they are pushed back and thus the PE is compressing in a bit.