Why We Revised Our Price Estimate For Boeing Downwards

Boeing (NYSE:BA) has failed to impress in the last three quarters as revenues continue to fall year over year. In addition, the company has incurred large expenses on some of its programs. This has had quite a negative impact on earnings this year. That said, in the most recent quarter (Q3), the aerospace giant reported quite a solid earnings, mostly on the back of favorable tax adjustments. Revenues were down 8% year on year, as expected, on the timing of deliveries. Despite this, the company generated significant cash flows, a key metric that is immune to one-time accounting adjustments. It is expected that Boeing’s cash flows will continue to remain strong in the next few years driven by increased production of its 737 jets and plans to improve profitability of the 787 Dreamliner.

However, commercial orders are still in quite a slump. Boeing deliveries have fallen considerably this year and will continue to do so considering the current economic environment. The weak economy has forced air carriers and governments to delay or cancel orders for new aircraft, including the flagship 787 Dreamliner. Furthermore, airliners built more than 20 to 30 years ago are still flying regular routes after being refurbished multiple times. To compensate for falling revenues, Boeing is seeking to push aggressively into aftermarket sales that currently show 4.5% annual growth.

Since the commercial business represents almost 65% of the total revenues, such a slowdown is bound to hurt the business.

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