Stocks continue to climb, and the industrial sector has been no exception over the last few months. Shares of high-quality companies The Boeing Company (NYSE:BA) and General Electric Company (NYSE:GE) sit at or near all-time highs. As the economy continues to recover from the damaging effects of the recent recession, more people are getting on planes as business and personal activity picks up again. In that vein, taking a look into the companies that make air travel possible is an intriguing idea. Even though it seems that value is hard to find in today’s market, it’s worth trying to dig into these industrials to see what, if any, attractive valuations may exist.
What, Boeing worry?
Earlier this year, concerns grew regarding the safety of Boeing’s Dreamliner aircraft after a series of mishaps for the company’s new jet. The safety of the jet was called into question after several reported problems, including when an electrical fire broke out in an empty Japan Airlines 787 Dreamliner in January.
After the Dreamliner’s problems surfaced, The Boeing Company (NYSE:BA)’s stock price experienced only a slight blip in what has otherwise been an impressive run over the past few years. Shares have made up losses in the aftermath of the Dreamliner issues, and then some. After declining from $78 per share to $74 per share in January, shares have stampeded higher to the current level of $84 per share.
The market has essentially shrugged off any potential concerns regarding the safety of the Dreamliner, as have the airlines that purchase from Boeing. In early 2012, Indonesia’s Lion Air placed an order for 230 aircraft, a deal worth $22 billion. Other deals include the recently announced tentative agreement in place with Ireland’s Ryanair for $18 billion worth of planes.
The Boeing Company (NYSE:BA) generated more than $81 billion in sales last year, a 19% increase year over year. Operating income rose 8% from the previous year. Boeing is clearly a strong cash flow generator, and the company rewards its shareholders accordingly.
The other masters of the skies
Fellow diversified industrial General Electric Company (NYSE:GE) also has a large aviation business. GE is almost four times as large as The Boeing Company (NYSE:BA) by market capitalization, but isn’t operating nearly as well as its smaller peer. Total revenue was essentially flat in 2012 versus the prior year, and diluted earnings per share increased only 4.8%.
While General Electric Company (NYSE:GE) has done an admirable job digging itself out of the hole caused by the Great Recession—as evidenced by its share price tripling from its March 2009 low—the company’s revenue remains well below the levels seen in 2008 or 2009.
United Technologies Corporation (NYSE:UTX)’s Pratt & Whitney subsidiary makes aircraft engines for commercial, military, business jet, and general aviation markets, as well as provides fleet management services for commercial engines, and represents the company’s largest segment by unit sales. Furthermore, United Technologies operates its UTC Aerospace Systems segment, which supplies electric power generation, management and distribution systems, as well as flight control systems to the aerospace industry.
United Technologies Corporation (NYSE:UTX) performed well last year, but didn’t shoot the lights out by any means. Sales increased 4% year over year, and earnings per share were essentially flat from the prior year. Better news came from the company’s outlook for this year. The company announced 2013 earnings expectations of $5.85 To $6.15 per share for continuing operations, up 10 to 16 percent, on sales growth of 10 to 12 percent.