With Boeing's (BA) earnings coming up this Wednesday, it serves to look at how Boeing has performed in past earnings releases. Upon investigation, not only has Boeing been a steady outperformer throughout the last two years, but the company has blown out the numbers of late. Here is a look at Boeing's earnings in the last year.
Consecutive earnings beats of 29%, 33%, 82%, and 29% are stellar, let alone almost unheard of. Even the Herculean Apple (AAPL) only boasts beats of 34%, 37%, and 23% over the last year, with one outright miss sprinkled in. I challenge any reader to find consecutive earnings beats of that scale for another large-cap public company. And I don't expect Boeing to ease up on this relentless whipping anytime soon, as the average estimate for the upcoming 2nd quarter is at $1.12 of earnings, below Q1 results of $1.22, and last year's Q2 of $1.25. Considering Q2/Q1 earnings growth have jumped by 51% and 60% in the last two years, I think it is ridiculous that current estimates come in lower than 1st quarter results. What I think we have here is a case of Wall Street analysts being too stubborn to adjust their estimates upwards, only to repeatedly realize the foolishness of their stubbornness once Boeing trounces the numbers again.
Boeing shares jumped over 5% after their last quarterly release, but even without the exciting prospects of another earnings beat, Boeing still makes a very attractive stock. I believe Boeing is in the beginning of riding the powerful aerospace cycle. Boeing's Commercial Airplanes division is its most prominent one and makes up around 60% of revenues. This business operates in a virtual duopoly with Airbus, the largest subsidiary of the European Aeronautic Defence and Space Company,(EADSF.PK) which has gotten the better of Boeing in recent years.
Airbus's market share in commercial aircraft has topped Boeing's since 2002, and Airbus has been able to consistently outshine because the company has come out with new planes while Boeing has been stuck having to delay the release of its highly anticipated 787 Dreamliner multiple times. Even though this Dreamliner had the most successful unveiling of any new commercial plane in the company's history in terms of order numbers, Boeing has been stuck in the mud until recently, as the Dreamliner is only finally starting to ship to airline companies even though it was originally planned to launch in 2008.
Now with the 787 Dreamliner in production and Airbus not coming out with a major new model until 2015, I think Being is poised to take back a healthy chunk of market share from its only real competitor. And recent reports are starting to evidence this to be the case. Last year, Airbus sold a record 534 aircraft of more than 100 seats in comparison to Boeing's 477. But this year the tide is turning as Boeing is currently outpacing Airbus in planes sold, and projections have Boeing delivering 592 planes by year's end, besting Airbus's 570. This shift is significant as it marks the first time in a decade Boeing has outdone Airbus, a trend which I believe will carry on for years to come on the back of the 787 Dreamliner.
Further validation of this dethroning can be found at this year's Farnborough Airshow held July 9-15, where Boeing took total orders and commitments for 396 aircraft valued at around $37 billion. This more than doubled Airbus's 115 airplanes and $16.9 billion in value. The airshow turned out to be a significant setback for Airbus who captured $72 billion in orders the previous year, $50 billion more than Boeing had secured.
And there are many other tailwinds that can propel Boeing's stock to higher grounds (no triple pun intended). There is huge demand for Boeing's jets as airlines are eager to ditch their older models for the much more fuel-efficient new Boeing fleet. Boeing's 787 Dreamliner prides itself on being ultra fuel-efficient with new game changing technologies as it uses 20% less fuel than present models. And Boeing is no one trick pony. Its current best-selling model that has helped drive the company to its banner year, the 737 MAX, emits 286,000 fewer tons of CO2 and saves nearly 200 million pounds of fuel per year in comparison to today's most fuel-efficient planes. This accounts for approximately $100 million in cost savings annually! As long as this secular trend towards energy conservation continues, there exists an obvious demand for Boeing jets.
Moreover, the company's books are as full as they have ever been. Boeing currently has a huge backlog of 3,924 unfilled commercial orders in the pipeline. This backlog would take Boeing over 7 years to clear out, and that's with the assumption no new orders will come in. With these future revenues and cash flows already mapped out, the company is afforded great visibility, something that can allow management to comfortably continue to raise the dividend (presently at 2.4%) with each coming year.
Now it can't be forgotten that commercial airplanes only account for part of Boeing's business. Around 40% of the company's sales come from the Defense, Space, & Security division which produces things like fighter jets, satellites, missiles/ bombs, and rotocrafts. Given that Boeing is a giant government contractor, with the US Department of Defense accounting for around 80% of this segment's revenues, Boeing stands vulnerable to the budgetary headwinds this country faces. And while the expected defense cuts in Washington are projected to hurt the company, I think Boeing's stock has already priced in these concerns as its current P/E of 12.8 trades at a historical discount.
Even though Boeing has run up a couple points since the recent Farnborough Airshow, especially after news of a deal reached with United (UAL) for 150 new aircraft, I feel Boeing is still a safe bet heading into earnings and will be a winner for a long time to come.
Disclosure: I am long BA.