boeing
New York symbol BA, is the world’s second-largest maker of commercial aircraft, behind Europe’s Airbus.
The proposed “cap-and-trade” bill making its way through the U.S. Congress aims to limit the amount of greenhouse gases (particularly carbon dioxide) that companies can emit. This will almost certainly drive up their costs. However, many businesses stand to profit as consumers look for ways to cut their energy use. We’ve examined three below. While all are leaders in “green” technologies, only two are buys right now. TOYOTA MOTOR CO. ADRs $83 (New York symbol TM; Conservative Growth Portfolio, Manufacturing & Industry sector; ADRs outstanding: 1.6 billion; Market cap: $132.8 billion; Price-to-sales ratio: 0.6; WSSF Rating: Above Average) recently overtook General Motors as the world’s largest carmaker. That was partly due to its success with gasoline-electric hybrid cars. Toyota started selling its Prius mid-sized hybrid car in 1997, and now dominates this market. Besides the Prius, the company has launched hybrid versions of its larger cars and trucks. Hybrids account for less than 10% of Toyota’s sales, but they generate much higher profit margins than its gasoline-powered cars. The company owns patents on over 2,000 hybrid-engine parts. That makes it difficult for other carmakers to develop their own hybrids. As a result, many have licensed the technology from Toyota. This generates royalty income for the company....
THE BOEING CO. $43 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 726.4 million; Market cap: $31.2 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) is focusing on improving the fuel-efficiency of its passenger jets. That should help it increase sales to cost-conscious airlines. Boeing’s new 787 Dreamliner plane uses lightweight materials, like titanium and carbon fibre. That makes it 20% more fuel-efficient than current planes. The 787 also features new energy-efficient interior lighting systems, which will lower its operating costs further. However, Boeing had to delay the initial test flight last June because it found structural weakness where the plane’s wings connect to the body. The company feels it can fix this without redesigning the plane, and hopes to resume testing in the next few months. Despite this setback, Boeing still has 851 orders for the 787. These are worth around $151 billion....
THE BOEING CO., $41.88, New York symbol BA, fell 13% this week after it delayed the initial test flight of its new 787 Dreamliner plane for a fifth time. The company had hoped to perform the flight by the end of June. The delay was caused by the discovery of weakness where the wings connect to the plane’s body. Boeing’s management feels that the problem is small, but it has postponed test flights for now. This, in turn, will delay deliveries to customers; Boeing had planned to start delivering 787s in the first quarter of 2010. The recession has hurt global travel volumes, so many airlines would probably prefer to postpone buying new 787s anyway. But some will probably still demand millions of dollars in compensation....
United Technologies serves the aerospace and construction industries. These are highly cyclical businesses, and fears of a long recession caused the stock to fall 54.7%, from $82.50 in 2007 to $37.40 in March 2009. Since then, the stock has regained a third of this drop. We feel United Technologies has more gains ahead. That’s largely because all of its companies are market leaders with strong brands and loyal customers. As well, a new restructuring plan puts the company in a good position to rapidly increase its earnings when the economy begins to recover. UNITED TECHNOLOGIES CORP. $51 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 942 million; Market cap: $48 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) has six main businesses: Carrier makes heating and air-conditioning equipment (25% of 2008 revenue, 17% of profit); Otis makes and services elevators (22%, 32%); Pratt & Whitney makes aircraft engines (22%, 27%); Hamilton Sundstrand makes electronic controls for aircraft (11%, 13%); UTC Fire & Security sells burglar alarms and fire-protection services (11%, 6%); and Sikorsky makes helicopters (9%, 5%). The U.S. government is United Technologies’ biggest customer, and accounts for about 13% of its yearly revenue....
UNITED TECHNOLOGIES CORP. $51 (New York symbol UTX; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 942 million; Market cap: $48 billion; Price-to-sales ratio: 0.9; WSSF Rating: Above Average) has six main businesses: Carrier makes heating and air-conditioning equipment (25% of 2008 revenue, 17% of profit); Otis makes and services elevators (22%, 32%); Pratt & Whitney makes aircraft engines (22%, 27%); Hamilton Sundstrand makes electronic controls for aircraft (11%, 13%); UTC Fire & Security sells burglar alarms and fire-protection services (11%, 6%); and Sikorsky makes helicopters (9%, 5%). The U.S. government is United Technologies’ biggest customer, and accounts for about 13% of its yearly revenue. We feel that United Technologies’ diversification is one of its major strengths. All of its businesses are leaders in their industries. Plus, the company sells products to both original-equipment manufacturers and aftermarket customers. That cuts its risk. For example, when demand for new planes is weak, airlines will probably buy more replacement parts instead of new aircraft. When the economy improves, aircraft makers will order more new engines and electronics. This will offset lower sales of spare parts....
CAE INC. $7.03 (Toronto symbol CAE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 255.1 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.1; SI Rating: Average) makes flight simulators and operates pilot-training facilities. CAE trains over 75,000 pilots a year at 75 sites in 20 countries.
CAE gets about half of its revenue and earnings from highly cyclical commercial airlines. However, the remaining half comes from military clients, which cuts its risk. As well, steady revenue from long-term training contracts helps offset its reliance on new-simulator sales, which have slowed recently. CAE’s revenue rose 68.6%, from $986.2 million in 2005 to $1.7 billion in 2009 (CAE’s fiscal year ends March 31). Earnings soared from $0.19 a share (or a total of $46.9 million) in 2005 to $0.79 a share (or $200.5 million) in 2009. The gain was largely due to a successful restructuring plan, including the sale of its non-aviation businesses.
CAE also plans to spend $714 million over the next five years to apply its expertise to new areas. For example, CAE’s high-resolution displays and simulation technology could help pilots take off and land in foggy or misty conditions. The Canadian government plans to provide up to $250 million in financing.
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CAE gets about half of its revenue and earnings from highly cyclical commercial airlines. However, the remaining half comes from military clients, which cuts its risk. As well, steady revenue from long-term training contracts helps offset its reliance on new-simulator sales, which have slowed recently. CAE’s revenue rose 68.6%, from $986.2 million in 2005 to $1.7 billion in 2009 (CAE’s fiscal year ends March 31). Earnings soared from $0.19 a share (or a total of $46.9 million) in 2005 to $0.79 a share (or $200.5 million) in 2009. The gain was largely due to a successful restructuring plan, including the sale of its non-aviation businesses.
Research spending a hidden asset
The company continues to spend about 5% of its revenue on research. This lowers CAE’s earnings, but helps it compete with larger simulator makers, such as Boeing and Lockheed Martin.CAE also plans to spend $714 million over the next five years to apply its expertise to new areas. For example, CAE’s high-resolution displays and simulation technology could help pilots take off and land in foggy or misty conditions. The Canadian government plans to provide up to $250 million in financing.
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THE BOEING CO. $44 (New York symbol BA; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 726.2 million; Market cap: $32 billion; Price-to-sales ratio: 0.5; WSSF Rating: Above Average) has finished initial testing of the new Rolls Royce engine that will power its 787 Dreamliner jet. The plane should begin test flights before the end of June. Boeing plans to start deliveries in the first quarter of next year. Production delays caused customers to cancel 32 orders for the 787 in the first quarter, but Boeing still has 886 orders with a value of $133 billion. As well, the new plane is 20% more fuel efficient than current models. This should appeal to cost-conscious airlines. Boeing is a buy.
Bombardier makes most of its money from its airplane operations. This is a highly cyclical industry, and the recession has hurt demand for new planes. That’s mainly why Bombardier’s shares are down over 50% from last June’s peak of around $9. However, Bombardier’s passenger-railcar business, while not as profitable, adds stability. The long-term outlook for this division remains bright, particularly as more people move to cities and governments increase spending on public-transit systems. BOMBARDIER INC. (Toronto symbols BBD.A $3.78 and...
BOMBARDIER INC. (Toronto symbols BBD.A $3.78 and
BBD.B $3.65, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.4 billion; Price-to-sales ratio: 0.3; SI Rating: Extra Risk) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. Bombardier’s aerospace division supplies about half of its revenue and two-thirds of its profits.
The remaining revenue and earnings come from Bombardier’s transportation division, which controls 22% of the global market. This makes Bombardier the world’s largest maker of passenger railcars and commuter trains. The company sells most of its trains under long-term contracts with large, well-financed customers, such as national railways and municipal transit authorities. This helps offset the cyclical nature of Bombardier’s aircraft business.
Bombardier’s revenue fell from $15.6 billion in 2005 (the company’s fiscal year ends January 31) to $14.8 billion in 2006, but rose to $19.7 billion in 2009 (all amounts except share price and market cap in U.S. dollars). It lost $0.08 a share (or a total of $122 million) in 2005. But thanks to a major restructuring of its railcar business, earnings jumped from $0.11 a share (or $192 million) in 2006 to $0.56 a share (or $1 billion) in 2009.
The recession has hurt demand for new aircraft. In the latest fiscal year, Bombardier delivered 349 planes, down from 361 the previous year. Orders for new planes fell more than 50%, to 367 from 698.
Despite the drop in deliveries, the aerospace division’s revenue rose 2.6% in fiscal 2009, to $10 billion from $9.7 billion the previous year. The gain was the result of higher selling prices for business jets, and increased revenue from repairing and maintaining aircraft. Its gross profit margin (its gross profits as a percentage of its revenue) rose to 9.0% from 5.8%. The division’s $23.5-billion order backlog is equal to 2.4 years of revenue.
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BBD.B $3.65, Aggressive Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 1.7 billion; Market cap: $6.4 billion; Price-to-sales ratio: 0.3; SI Rating: Extra Risk) is the world’s third-largest maker of commercial aircraft, after Boeing and Airbus. Bombardier’s aerospace division supplies about half of its revenue and two-thirds of its profits.
The remaining revenue and earnings come from Bombardier’s transportation division, which controls 22% of the global market. This makes Bombardier the world’s largest maker of passenger railcars and commuter trains. The company sells most of its trains under long-term contracts with large, well-financed customers, such as national railways and municipal transit authorities. This helps offset the cyclical nature of Bombardier’s aircraft business.
Bombardier’s revenue fell from $15.6 billion in 2005 (the company’s fiscal year ends January 31) to $14.8 billion in 2006, but rose to $19.7 billion in 2009 (all amounts except share price and market cap in U.S. dollars). It lost $0.08 a share (or a total of $122 million) in 2005. But thanks to a major restructuring of its railcar business, earnings jumped from $0.11 a share (or $192 million) in 2006 to $0.56 a share (or $1 billion) in 2009.
The recession has hurt demand for new aircraft. In the latest fiscal year, Bombardier delivered 349 planes, down from 361 the previous year. Orders for new planes fell more than 50%, to 367 from 698.
Despite the drop in deliveries, the aerospace division’s revenue rose 2.6% in fiscal 2009, to $10 billion from $9.7 billion the previous year. The gain was the result of higher selling prices for business jets, and increased revenue from repairing and maintaining aircraft. Its gross profit margin (its gross profits as a percentage of its revenue) rose to 9.0% from 5.8%. The division’s $23.5-billion order backlog is equal to 2.4 years of revenue.
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Norsat International, $0.76, symbol NII on Toronto (Shares outstanding: 54.3 million; Market cap: $41.3 million), designs and makes satellite-ground equipment that transmits data, audio and video signals through commercial and military satellites. Norsat’s equipment is used by emergency-services and homeland-security agencies, military organizations, health-care providers and news organizations. Its main customers include the U.S. and Irish defense departments, as well as the U.S. Marine Corps, Army, Navy and Air Force. Norsat also provides consulting and engineering services. Norsat’s GLOBETrekker is a portable satellite system that lets users quickly set up a reliable broadband connection. The GLOBETrekker can be carried in a backpack, and is ideal for highly mobile users, like military special-forces units, search-and-rescue crews and reporters....