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Honeywell International Inc. (HON), The Boeing Company (BA), Embraer SA (ADR) (ERJ): Defense and Commercial Flights Are on a Roll

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Honeywell International Inc. (NYSE:HON)In clear contrast to the defense-focused companies that are suffering from budget cuts in the U.S., the commercial aerospace sector is not feeling the heat of the financial meltdown. Airlines are boosting their demand for new airplanes, seeking to expand their fleets and upgrade them by acquiring more fuel-efficient and bigger planes that could improve their profit margins.

Let’s take a look at three companies that manufacture aircrafts or aircraft parts for different targets including defense and commercial airplanes: Honeywell International Inc. (NYSE:HON), The Boeing Company (NYSE:BA), and Embraer SA (ADR) (NYSE:ERJ).

Boeing: Delivering growth

The Boeing Company (NYSE:BA) is one of the leading aerospace companies. Apart from jetliners, the company manufactures rotorcraft, electronic and defense systems, missiles, satellites, and advanced information and communication systems. The Boeing Company (NYSE:BA) posted almost flat revenue for the first quarter of 2013 but it increased its net income 24% compared to same quarter of 2012, totaling $1.1 billion. This was due to improvements in operating performance, which was driven by an increase in the commercial airplanes segment as well as in the defense, space, and security one. This data is important for investors as the company could continue to generate profits with lower margins.

Management expects further increase in commercial deliveries and a core EPS of $6.30, which is a very good signal for investors. Moreover, the company’s growth is somewhat guaranteed by the record backlog of $324 billion in the commercial airplanes segment with attractive margins of around 10%. This is an excellent choice for investors that want exposure to the commercial aircraft sector as The Boeing Company (NYSE:BA) is geographically diversified and has a balanced revenue mix.

Honeywell: Waiting for expansion

Honeywell International Inc. (NYSE:HON) is a diversified company that has several segments of operations: aerospace, automation and control systems, performance materials, and transportation devices. One of its most important segments is the aerospace one as it accounted for more than 30% of 2013’s first-quarter sales.

However, Honeywell produces aircraft parts and not the complete plane like its peers in this article. Although Honeywell International Inc. (NYSE:HON) had almost flat sales in the first quarter of 2013 compared to the same quarter of 2012, it increased its operating margin 120 basis points along with a 9% improvement in its free cash flow. But, most importantly, the company increased EPS 16% to $1.21 during the same period. These are great results amid a sluggish global growth environment.

Management expects 3% sales growth for 2013 compared to 2012, and an increase between 7% and 11% in EPS. These excellent growth prospects have been reflected in Honeywell International Inc. (NYSE:HON)’s stock price, which has surged 48% from June 2012 to present. The company is properly positioned for further growth: its aerospace margins are expected to increase to an outstanding 19.6%, and there’s opportunity from entering new markets.

Regarding its geographic mix, 65% comes from the U.S., 17% from Europe, and 9% from Asia, which results in a lot of exposure to a very competitive market. Investors should wait for changes in its revenue mix and expansion to new markets.

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