Exclusive Analysis for the Discerning Investor
The global aerospace giant reported strong second-quarter results and raised its top- and bottom-line outlook for 2012. The firm’s commercial backlog remains robust at nearly 4,000 unfulfilled orders, and we continue to expect a boom in commercial aircraft deliveries in coming years.
The Farnborough Airshow did not disappoint. We care less about who wins the battle between Boeing and Airbus as the best risk-adjusted investments are in the supply chain. There are few industries that have better demand visibility than aerospace at this time.
Engine maker Cummins is cutting its full-year outlook in light of lower-than-expected demand. We touch on recent guidance cuts and the health of the economy.
Aluminum giant Alcoa reported better than expected results. We think shares are fairly valued.
Global shipper FedEx reported strong fiscal year 2012 fourth-quarter results. Management also gave optimistic guidance for the domestic and global economy, calling for continued expansion. Still, we think the shares are fairly valued at current levels.
Although a number of suppliers to the aerospace industry have come under pressure as of late, the strength in commercial aerospace demand remains firm.
The Boeing Co. (BA) reported fourth-quarter results Thursday that showed continued cost pressures as it relates to its pension obligations but more importantly a surging commercial aerospace backlog. We’ll be evaluating our long-term assumptions for Boeing, but we don’t expect to make a material change to our fair value estimate at this time. We have little interest in opening up a position in Boeing, given its fairly valued status and the substantial execution risk embedded in achieving its aggressive commercial delivery schedule (and its at-risk defense exposure due to impending budget cuts). That said, we are very constructive on the commercial aerospace supply chain, as parts suppliers benefit from the implicit backing of Boeing and do not need customers to … Read more
On Wednesday, Boeing reported strong third-quarter results that revealed earnings expansion and continued commercial backlog expansion. We’re sticking with our fair value estimate. The commercial jet maker’s revenue jumped 4% led by a 9% increase in commercial airplane sales, and the firm leveraged that top-line expansion into 24% earnings from operations. Boeing’s net income and earnings per share increased by more than 30% each thanks to roughly 1.5 percentage points of operating-margin growth. The aerospace giant’s free cash flow, however, was less than impressive, falling to practically nil from the same period a year ago—meaning earnings quality is still far from sound (largely due to the flexibility of program accounting). We’d be more comfortable in Boeing’s bottom-line (the guidance of … Read more
Boeing (BA) reported decent second-quarter results Wednesday, but we view such a quarter as a non-event for the aerospace giant. We maintain that the future of this jet maker rests on its ability to deliver its 787 and the profitability to be garnered on this program, which we forecast to be practically nil out of the gates. Management slightly lowered its forecasts for deliveries this year due to a short-term blip in (you guessed it) its 787 program, but again we view this change as largely immaterial to investors. Interestingly, total backlog fell sequentially, but we view this more as weakness in Boeing’s narrowbody strategy than in the broader commercial aerospace segment. We were pleased with the operating cash flow performance in … Read more
General Electric (GE) posted strong second-quarter results Friday. Adjusted revenue advanced 7% in the period, while operating profit burgeoned 18% from last year’s quarter. The conglomerate experienced particular earnings strength from recovering GE Capital and its transportation segment, while its energy infrastructure and home and business solutions segments lagged behind considerably. Importantly, the company noted that infrastructure orders were up 24%, with equipment and services orders increasing 33% and 16%, respectively — backlog reached a new all-time high of $189 billion at the end of the quarter (it had been $177 billion in the first quarter). GE indicated that industrial earnings should improve in the second half of this year, with expectations for the cycle to accelerate in 2012. We … Read more