Shares of Boeing (BA) had a good day after the company published a strong first quarter earnings report.
First Quarter Results
Boeing reported first quarter earnings of $1.11, excluding a one-time gain related to a satellite contract dispute, far above analyst consensus of $0.94 per share. Including the gain, net income came in at $923 million or $1.22 per share compared to $0.78 last year. Revenues increased 30% to $19.4 billion, exceeding the consensus estimate of $18.4 billion as commercial deliveries were very strong.
Commercial Division
Revenues at the commercial division increased 54% to $10.9 billion as deliveries totaled 137 units. Deliveries were driven by strong performance of the 737 model of which some 99 planes got delivered. Operating margins rose 270 basis points to 9.9% on higher deliveries and lower Research & Development expenses. The company took in 412 net new orders, currently having 4,000 units in its backlog representing a value of $308 billion.
Defense, Space & Security
Revenues increased 8% to $8.2 billion, driven by a F-15 contract to Saudi Arabia while Network & Space Systems reported a 23% fall in revenues. Operating margins improved 20 basis points to 9.0% on strong cost control and improved logistics. The backlog increased some 20% to $72 billion on the back of the F-15 order, now standing at two years of anticipated annual revenues.
Outlook
Boeing raised its full year earnings per share target on the back of the strong first quarter results by some 10 cents. It now expects earnings per share to come in between $4.15 and $4.35 per share. Full year revenues are expected to come in between $78 and $80 billion with research and development expenses anticipated at $3.3-$3.5 billion.
The company expects to deliver between 585 and 600 commercial planes which should generate revenues between $47.5 and $49.5 billion. Operating margins are expected to come down a bit to 8.5 and 9.0% for the full year. The defense activities are expected to generate between $30 and $30.5 billion in revenues with operating margins expected to exceed 9%.
Valuation
The company ended the first quarter with $10.5 billion in cash, equivalents and short term investments. Boeing operates with $8.8 billion in long term debt for net cash position of $1.7 billion.
After today's rally shares are valued at some $58 billion. This implies that the operating assets of the firm are valued around $56 billion. At such a valuation Boeing trades at 0.8 times annual revenues and 14 times 2011's earnings. This compares a revenue multiple of 0.8 and an earnings multiple of 10 times for General Dynamics (GD).
Additionally the company pays a quarterly dividend $0.44 for an annual dividend yield of 2.3%
Investment Thesis
After today's strong results shares are approaching their highs around $80 set about a year ago. From that moment in time shares have seen a correction to levels of $60 amidst the European Sovereign Debt Crisis, but have rallied back to $77 at the close of today's trading session. A successful breakthrough of the $80 resistance level could give shares enough room to test all time highs set around $105 in 2007.
Earnings visibility for the company is very high. Its total backlog of $380 billion allows the company to continue production at this rate for five years into the future, even if it would not receive a single order in the meantime. Long term demand for aviation travel, a strong backlog supporting earnings visibility and a favorable dividend yield all favor a long term investment in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
