THE BOEING CO. (New York symbol BA; www.boeing.com grounded all of its new 787 Dreamliner passenger planes in January 2013 after a battery problem forced one to make an emergency landing in Japan. The 787 uses advanced rechargeable lithium-ion batteries to power its electrical systems. These batteries were overheating, which increases the risk of a fire. However, the company has redesigned the battery and feels regular flights will resume in the next few weeks. The stock fell to $75 after the grounding but has since reached new highs. That’s mainly due to Boeing’s quick response. Boeing moved fast on the battery problem. And although previous production problems had already put the Dreamliner several years behind schedule, few airlines cancelled their orders. Demand for the company’s other planes also remains strong. For example, Ireland’s Ryanair has ordered 175 of Boeing’s 737-800 jets. This deal is worth $15.6 billion, or 19% of Boeing’s 2012 revenue of $81.7 billion. The company will begin deliveries in 2017.
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Stock investing: Lower research costs free up cash for debt payments and other uses
Boeing gets about 40% of its revenue from its military and space divisions. This cuts its exposure to the highly cyclical airline industry. Boeing spent $9.0 billion on research in 2012. That’s down 10.4% from $10.0 billion in 2011. The company’s lower research costs have freed up cash for other uses, including paying down debt. On December 31, 2012, Boeing’s debt was $9.0 billion (or 14% of its market cap), down from $10 billion at the end of 2011. Research costs should keep falling now that the 787 is in full production. The company’s order backlog of $390.3 billion is equal to 4.8 years of revenue. Boeing will probably earn $6.38 a share this year, up 8.5% from $5.88 in 2012. The stock trades at just 13.3 times the 2013 estimate. The company also raised its quarterly dividend by 10.2% with the March 2013 payment. The new annual rate of $1.94 a share yields 2.3%. In the latest edition of Wall Street Stock Forecaster, we look at what would happen to Boeing’s military sales if the U.S. Congress cuts defense spending to lower the deficit. We also look at whether a fall in Boeing’s military sales can be offset by commercial airlines replacing their aging fleets—and whether the company’s share price can keep on rising. We conclude with our clear buy-hold-sell advice on the stock. (Note: If you are a current subscriber to Wall Street Stock Forecaster, please click here to view Pat’s recommendation. Be sure to log in first.) COMMENTS PLEASE—Share your investment experience and opinions with fellow TSINetwork.ca members Do you believe that stocks that rely on military spending for a significant part of their revenue are bound to suffer from the need of governments to cut their deficits? Or do you think that there are still too many threats to security (from North Korea, Iran, terrorist groups and so forth) for military spending to be cut very deeply? Let us know what you think.
