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Analysts expect Boeing Co. to boost sales despite government defense budget cuts.


Boeing poised to take off in 2014

by Aimee Keane
May 7, 2014


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Aimee Keane/MEDILL

 

Analysts target Boeing Co. stock to reach nearly $155 in 2014.

    Chicago-based Boeing Co. is poised for a successful 2014, despite aggravated U.S. armed forces budget cuts. Boeing sets 2014 revenue expectations between $87.5 billion and $90.5 billion, or between $6.10 and $6.30 per share, in line with analysts’ expectations of $89.9 billion or $6.51 per share.

    On a recent call with investors and media, Boeing chairman and CEO James McNerney said the commercial business environment is promising for 2014 based on increased global customer demand for fuel efficient aircraft, increased air cargo traffic and growth of passenger traffic. Boeing’s commercial division accounted for 61 percent of the company’s 2013 revenues of $87.8 billion.

    Boeing is expanding its defense business with foreign countries to compensate for domestic defense budget cuts. Boeing reported the first quarter delivery of the first C-17 aircraft to the Kuwait Air Force, the first Peace Eagle aircraft to the Turkish Armed Forces and test completion of a new satellite, signaling diversification of a category counting for nearly 35 percent of anticipated 2014 revenues. At the same time, Boeing secured domestic security contracts, including a $2.4 billion order with the U.S. Navy for 16 P-8A Poseidon aircraft. But additional budget cuts are expected to affect Boeing’s future bottom line.

    “We remained very concerned,” McNerney said, "about longer term budget uncertainty . . . the ultimate consequences of sequestration on national security, and the potential devastating impact to the nation’s industrial base.”

    “Boeing’s strong product offerings are likely to be overwhelmed by budget issues,” said Neal Dihora, an analyst at Morningstar Inc. in Chicago. “We forecast defense will decline to 31 percent of total sales in 2015 versus 50 percent in 2010.”

    The general consensus among analysts is for Boeing stock to hit $154.48 in 2014. The stock over the past 52 weeks ranges from $93.77 to $144.57, currently selling around $130. It commands a relatively high price-to-earnings ratio of 22.35, compared to that of defense competitor Lockheed Martin Co. at 17.14 and commercial competitor Embraer at 16.14.

    Boeing bought back 19.4 million shares of its stock in the first quarter, more than was expected by Canaccord Genuity Inc. analyst Ken Herbert. He has a stock price target of $160 and a buy rating. The majority of analysts surveyed by Bloomberg rate the stock a buy.

    In March, Boeing cleared a well-publicized hurdle when the Federal Aviation Administration announced that following a comprehensive review of Boeing’s new 787 Dreamliner, the aircraft met design and safety requirements. In January 2013, a lithium-ion battery caught fire aboard an empty Japan Airlines jet at Boston Logan Airport.

    Boeing has a backlog of 5,100 commercial airplanes, valued at a total of $374 billion, based on orders to be delivered until 2016. McNerney said the company is confident it will be able to confirm orders, particularly with the 777 model, well into 2017 and 2018.

    The company is looking to increase production efficiencies, and is on-track to increase 737 production to 47 per month, up from 42 per month this past quarter. This could mean future transferring of engineering talent around the country. McNerney said the location decisions will be based on creating the “strongest possible Boeing.”