Why Does Billionaire Andreas Halvorsen Love The Boeing Company (BA)?

Other manufacturers of aircraft or aircraft components include Embraer SA (ADR) (NYSE:ERJ), B/E Aerospace Inc (NASDAQ:BEAV), Spirit AeroSystems Holdings, Inc. (NYSE:SPR), and TransDigm Group Incorporated (NYSE:TDG). On a trailing basis each of these peers is valued at over 20 times its trailing earnings. B/E Aerospace and Spirit experienced double-digit growth rates in both revenue and earnings last quarter compared to the first quarter of 2012, which is at least somewhat positive in the context of this valuation premium to The Boeing Company (NYSE:BA). The sell-side is bullish on both companies, with expectations of continued growth resulting in a five-year PEG ratio of 0.8 in each case. While we’d certainly avoid taking these projections at face value, the recent results do suggest that B/E Aerospace Inc (NASDAQ:BEAV) and Spirit AeroSystems Holdings, Inc. (NYSE:SPR)could be worth further research.

Embraer SA (ADR) (NYSE:ERJ)’s earnings were down significantly in its most recent quarter compared to the same period in the previous year despite higher revenues, so in that case the expected increase in its earnings per share over the next year and a half in part represents analysts’ expectations of a recovery at the company. Still, it’s probably best to wait for Embraer to actually show some of these improvements. TransDigm Group Incorporated (NYSE:TDG) is in a similar position in terms of its recent financials; that stock is also the highest-priced of this peer group on a forward earnings basis with a P/E multiple of 18. As such we don’t think that it is a good buy.

Viking Global wasn’t the only hedge fund we track buying into The Boeing Company (NYSE:BA) last quarter; in fact, we see a lot of new positions in the stock when we look at our database. With the stock not being a clear value, the investment thesis has to be that aircraft orders are going to pick up strongly and drive high earnings growth over the next several years- higher, in fact, than Wall Street analysts are currently expecting. While we wouldn’t rule that out as a possibility, and think that investors should keep an eye on The Boeing Company (NYSE:BA), it seems like a bit of a speculative reason to buy at this time.

Disclosure: I own no shares of any stocks mentioned in this article.