Last Wednesday, Boeing (BA) reported strong second-quarter results that showed the commercial aerospace delivery upswing remains in the early innings. Though orders may not be as robust as previous years, we believe this is more a function of the airframe manufacturers being "sold out" in the near term and available delivery slots being so far in the future that airlines and leasing firms aren't exactly hurried. We've long maintained the commercial aerospace cycle will be robust in both magnitude and duration, and Boeing's report today supports this view.
Consolidated revenue grew 21% in the second quarter as commercial airplane deliveries jumped 27% from the same period a year ago. The global aerospace giant delivered 150 commercial aircraft in the quarter versus 118 in the year-ago period. So far through 2012, commercial aircraft deliveries have increased nearly 30%, to 287 planes. Such considerable strength drove revenue in its commercial airplane segment 34% higher in the quarter. And unlike other defense contractors-Northrop Grumman (NOC) and General Dynamics (GD)-that continue to face top-line pressure, Boeing's defense revenue jumped nearly 7% in the period thanks to strength in military aircraft and global services and support, the latter we think is a tremendous long-term opportunity for the company. Still, we're not expecting much from Boeing's defense business in coming years due to domestic government spending cuts and shifting priorities within the defense budget itself.
On the other hand, Boeing's commercial aerospace backlog remains strong at about 4,000 planes (nearly 7 times annual production) valued at $302 billion. We think this huge tally of unfulfilled orders provides the firm and its supply chain partners with tremendous visibility heading into any slowdown in the US and China and a prolonged recession in Europe. Boeing topped off the nice quarter by raising its revenue and earnings per share guidance for 2012 to the range of $79.5 billion to $81.5 billion (was $78 billion to $80 billion) and to the range of $4.40 to $4.60 per share (was $4.15 to $4.35 per share), respectively. Though we like Boeing, aerospace suppliers such as Precision Castparts (PCP), Astronics (ATRO), and EDAC Tech (EDAC) offer investors the best valuation upside potential within the aerospace sector, in our view - the latter we expect to nearly double from current levels. In the spirit of transparency, we make available our valuation reports on companies mentioned in this article here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Some of the companies mentioned in this article are included in our actively-managed portfolios.