Aviation Week In Review: Boeing and GE

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The Boeing Company

In the past week, Boeing (NYSE:BA) raised its dividend and share repurchase authorization as the upcycle in global commercial aviation has grown the company’s profit and cash flow. Separately, GE (NYSE:GE) was selected by Boeing to supply electrical power and common core systems for its wide-body airplane, 777X, which is under development. The 777X is being developed by Boeing as its next generation wide-body 777 that will replace its current generation 777s.

Boeing

On Monday, December 15, Boeing announced that it will repurchase shares worth $12 billion over the next two to three years. The company also hiked its dividend by 25% to 91 cents per share. [1] The increased dividend translates to a dividend yield of about 2.9%. This hike in Boeing’s share repurchases and dividend is a result of its rising profit and cash flow, driven by the global commercial aviation market. As airlines have ordered a record number of new airplanes over the past 4-5 years, Boeing has had to hike its production rates, delivering more airplanes and growing its revenue, profit and cash flow. The company currently has a backlog of over 5,700 airplanes that will cover its production for the next seven to eight years, at current production rates. [2] This upcycle in global commercial aviation has lifted Boeing’s profit from $3.3 billion in 2010 to $4.6 billion in 2013. In the current year, Boeing’s profit has continued to rise. This rising profit and cash flow is allowing the company to grow its share repurchases and dividends.

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– We currently have a price estimate of $136 for Boeing, around 10% ahead of its current market price. Boeing’s stock has fallen by around 5% over the past week.

– We currently estimate Boeing to post earnings of $8.21 per share in 2014, compared with its consensus earnings estimate of $8.36 per share.

See our complete analysis of Boeing here

General Electric

On Tuesday, December 16, GE Aviation announced that it has been selected by Boeing to supply Electrical Load Management Systems (ELMS), backup generators, backup converters, common core systems, and flight recorders for the latter’s latest, wide-body airplane, 777X. [3] GE Aviation is also providing the GE9X engine for the 777X. Launched by Boeing in late 2013, the 777X has to date received 286 orders from airlines around the world. This new airplane from Boeing will be the next generation version of the company’s 777s that have received over 1,800 orders since introduction in 1995. [2] Production of the 777X is expected to start in 2017, with first delivery in 2020. If the 777X receives the same customer response as the 777, then GE Aviation will generate a steady revenue stream from the supply of engine and other components to this airplane.

GE Aviation is also providing engine and ELMS for the current generation 777s, and Boeing’s continuation with GE Aviation as a supplier for these 777X parts highlights GE Aviation’s commanding position as an aircraft engine and component supplier. Aviation generates roughly $22 billion a year in revenue for GE, constituting about 15% of the company’s total revenue.

– We currently have a price estimate of $28 for GE, around 10% ahead of its current market price.

– GE’s stock has fallen by about 3% over the past week. We estimate GE to post earnings of $1.69 per share in 2014, compared with its consensus earnings estimate of $1.67 per share.

See our complete analysis of GE here

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Notes:
  1. Boeing Board Increases Share Repurchase Authorization to $12 Billion, Raises Dividend 25 Percent, December 15 2014, www.boeing.com []
  2. Boeing’s unfilled orders through November 2014, December 18 2014, www.boeing.com [] []
  3. Boeing selects GE Aviation for electrical power systems on 777X, December 18 2014, www.ge.com []