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The Boeing Company (BA): This Company’s Stock Will Rise as High as its Products

Designing groundbreaking jetliners, military aircraft, satellites, missile defenses, and launch systems, The Boeing Company (NYSE:BA) is America’s leader in aerospace technology. If it flies through the air, Boeing can make it. This innovator employs 172,000 U.S. workers and consistently works to expand its global market and improve efficiency.  But being an innovator doesn’t come without its risks.

The Boeing Company (NYSE:BA)

787 problems…

During the first year of service, the Boeing 787 Dreamliner experienced at least four electrical problems that stemmed from its lithium ion batteries. After incidents on All Nippon Airways and Japan Airlines planes, the Federal Aviation Administrations ordered a review of the 787’s designs.

During the period of review, hundreds of The Boeing Company (NYSE:BA) experts worked with U.S. and Japanese authorities to identify the cause of the battery failures and to create a solution. The solution included adding several layers of protection around the battery to prevent and isolate potential faults, along with a new enclosure designed to keep any battery problems from affecting the airplane.

Since then, the airplane has been cleared to resume flight as scheduled. With improved economics, fuel efficiency, lower noise and emissions, and top tier passenger comfort, the 787 is once again the most technically impressive commercial plane in the sky.

As a result of the 787 problems, The Boeing Company (NYSE:BA) was not able to execute share repurchases as planned for the first quarter of 2013. This will be remedied throughout the rest of 2013. Also, the fewer 787 deliveries actually helped increase operating margins for commercial planes to 11.4% by lowering margin dilution. Currently, production of the 787 is at 7 per month and is expected to grow to 10 per month by the end of 2013.

…but earnings ain’t one

Despite the negative effects of the 787, The Boeing Company (NYSE:BA) managed to increase earnings per share by 24% to $1.73 in the first quarter of 2013. The company experienced a slight revenue decrease of 2.50% that it remedied by focusing on productivity and efficiency. An example of this is Boeing’s consolidation of its North American flight training operation into the existing Miami facility. The company is also reducing infrastructure on the 787 as it captures efficiencies and production stabilizes.

Currently, The Boeing Company (NYSE:BA) has a backlog of over 4,400 commercial planes worth $392 billion. The line for a 787 is so long that if you placed an order today, you wouldn’t receive the plane until 2019. Customer reorders of commercial planes are healthy with the exception of the 747 cargo market. Boeing plans to reduce production of the 747 from 2 per month to 1.75 per month in 2014 to deal with the softening market. Boeing’s strategy for the future of its commercial aircrafts is to balance the production schedule with strong demand to minimize long term volatility and maximize productivity and profitability.

Boeing’s defense, space, and security sector relies on government spending. So far this year, Congress and the administration have been acting to avoid across the board budget sequestration cuts by allowing the defense department to selectively allocate spending and approve multi-year contracts. Boeing believes this flexibility is an advantage for the company’s portfolio of proven and affordable systems. The international defense market also improved 42% last quarter and represents 28% of Boeing’s revenue.

Aerospace growth in emerging markets such as China and India is in the double digits bringing the global growth rate to 5%. These emerging markets are using air travel to grow their country’s infrastructure and represents about half of Boeing’s backlog.

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