Boeing Can Take Flight To $91 With Earnings Momentum

Boeing (NYSE:BA) will announce earnings Wednesday, and we expect it to deliver a stellar earnings this quarter. We expect revenues to grow in the neighborhood of 20-25% while earnings are expected to expand by around 20%. This is due to the growth in deliveries by the company across its commercial and defense sections. Boeing’s principal global competitors include Lockheed Martin (NYSE:LMT), Northrop Grumman (NYSE:NOC) and Airbus (EPA:EAD). We currently have a price estimate of $91 for Trefis, which is about 25% above the current market price.

See our full analysis of the Boeing stock here

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Commercial airlines in developing countries to drive growth

The booming demand for air travel in emerging economies is driving the growth of Boeing’s commercial aviation business. The company recently bagged the biggest order in its history of commercial  aviation from Lion Air, an Indonesian airline of 230 aircraft valued at $22.5 billion.

Boeing has recognized emerging economies as the key area of growth and is capitalizing on it by increasing its sales and marketing efforts in these regions. It has recently added orders from Pakistan Airlines and logistics contracts from Korea to its books. We feel the company has done well to capture the demand for commercial aviation from these countries in the first quarter.

Rising pension liabilities a source of concern

Boeing, like other big industrial firms, has been hit by ballooning pension liabilities due to historically low interest rates. The pension liabilities of Boeing have increased by 63% in the last year, reaching a figure of about $2.6B. The company will have to make a sizable contribution in 2012 to bring it under control.

Defense Space and Security Systems face budget cuts

Boeing is one of the key U.S. defense contractors and is expected to be significantly hit by reduced Pentagon defense spending. The company has already cited this reason to close its sprawling military airplane plant in Wichita, KS., over the next two years and lay off many of the 2,160 workers.

The Pentagon has also decided to eliminate 24 V-22 Osprey aircraft built by Boeing Co. and Textron Inc. at cost savings of approximately $1.75 billion over the next five years. We feel believe that  there is substantial downside to the new projects that Boeing has bagged in the defense sector recently. ^[1]

787 Dreamliner delays to cause pain

Revenue for Boeing should shoot up this quarter as the number of deliveries made by the company are much more than those in the corresponding quarter of previous year. In this quarter, Boeing delivered 137 planes in the commercial sector, a growth of 32% compared to the prior year quarter and 7% over the last quarter of 2011. The 737 next generation aircrafts were the star with Boeing delivering 99 of those as compared to 87 a year ago.

However, Boeing would still be disappointed with these numbers as it missed a major opportunity of increasing its deliveries through its 737 Dreamliner program which has been delayed by three years now. The company had started deliveries in the fourth quarter of 2011 but was again hit by issues regarding manufacturing errors.

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1. Boeing Textron V-22 Said To be Cut $1.75 Billion by Pentagon, Business Week, 7 Feb – 2012 [↩]