SPR

Boeing Burning Through Cash

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  Image: Boeing’s shares have seen better days. By Brian Nelson, CFA Aerospace giant Boeing (BA) reported disappointing third quarter results on October 23, with revenue and non-GAAP earnings per share coming in lower than expected. Revenue fell 1% in the quarter, while the firm posted large operating and net losses, which reflected impacts from the IAM strike and previously announced charges on its commercial (777X, 767) and defense (T-7A, KC-46A Tanker, Commercial Crew, and MQ-25) programs. GAAP loss per share was $9.97, while core non-GAAP loss per share came in at $10.44. These numbers aren’t reflective of Boeing’s long-term earnings power, but they showcase the challenges the firm continues to face. Management acknowledged that the path ahead will be … Read more

Paper: Value and Momentum Within Stocks, Too

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Please select the image below to download, “Value and Momentum Within Stocks, Too:” Abstract: This paper strives to advance the field of finance in four ways: 1) it extends the theory of the “The Arithmetic of Active Management” to the investor level; 2) it addresses certain data problems of factor-based methods, namely with respect to value and book-to-market ratios, while introducing price-to-fair-value ratios in a factor-based approach; 3) it may lay the foundation for academic literature regarding the Valuentum, the value-timing, and ultra-momentum factors; and 4) it walks through the potential relative outperformance that may be harvested at the intersection of relevant, unique and compensated factors within individual stocks. To download the full report, please click here (pdf). ———- Actual results … Read more

Boeing to Acquire Spirit AeroSystems

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Image: Boeing’s shares have traded sideways the past few years as it works to fix safety issues. By Brian Nelson, CFA Boeing (BA) has been plagued with safety issues the past couple of years as the company’s decision to cut costs by outsourcing much of its manufacturing operations has created a whole host of problems. Two deadly plane crashes of its 737 MAX coupled with a blown-out area of the fuselage in a recent Alaska Airlines (ALK) flight are but a few missteps that have plagued the aircraft maker. On July 1, Boeing announced that it would roll back some of its outsourcing, announcing that it would bring fuselage maker Spirit AeroSystems (SPR) back into the fold. Boeing’s purchase of … Read more

Boeing Shakes Up Executive Team

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  Image Source: Kanesue  By Brian Nelson, CFA On March 25, Boeing (BA) announced that CEO Dave Calhoun will step down as CEO at the end of 2024. The move comes weeks after an incident on an Alaska Airlines (ALK) flight where part of the fuselage blew out. The company’s Independent Board Chair Larry Kellner also announced that he would not stand for reelection at the next annual meeting. New Independent Board Chair Steve Mollenkopf will succeed Kellner and lead efforts to select Boeing’s next CEO. Mollenkopf has been on the board since 2020 and previously served as CEO of Qualcomm (QCOM). Further, Boeing Commercial Airplanes President and CEO Stan Deal will retire from Boeing effective immediately and be replaced … Read more

Merger Mania

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Image Source: Glenn Beltz By Brian Nelson, CFA Mergers and acquisition [M&A] activity continues as the market sets new highs. Elevated borrowing costs as a result of the Fed’s aggressive rate hiking cycle in 2022 are pushing many entities to pursue all-stock transactions. We’ve previously discussed our thoughts on the Cisco (CSCO)/Splunk (SPLK) tie-up in this article here, which was an all-cash deal, but several other rather large acquisitions have been announced that are worth bringing to members attention. On February 19, Capital One (COF) announced that it would acquire Discover Financial (DFS) in an all-stock $35.3 billion deal that would represent a 26.6% premium over Discover’s price as of February 16. The deal is expected to generate $2.7 billion … Read more

Boeing In Negative Headlines Again; Part of 737 Max Fuselage Blows Out During Commercial Flight

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  Image: Boeing’s shares have been quite volatile the past couple years. By Brian Nelson, CFA On January 6, Boeing (BA) received some more bad news. Part of a fuselage installed on one of its new eight-week old 737 Max 9 aircraft blew out on an Alaska Airlines (ALK) flight. There were no reported injuries because of the mishap, but understandably passengers were undoubtedly shaken up. Some posted videos of the experience. Boeing had been working hard to get back on track with customer perception of the safety of its 737 MAX line-up, and we view the incident as yet another hiccup in the firm’s relations with the public. Key Boeing supplier Spirit AeroSystems (SPR) installed the part on the … Read more

Lockheed Martin Represents Key Aerospace & Defense Exposure

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By Brian Nelson, CFA On October 17, Dividend Growth Newsletter portfolio holding Lockheed Martin (LMT) reported decent third-quarter 2023 results with the firm growing revenue roughly 1.8% on a year-over-year basis, and the firm beating the consensus estimate for non-GAAP diluted earnings per share. We like Lockheed as our aerospace and defense exposure more than Boeing (BA), given the latter’s long list of troubles and deteriorated financial health, punctuated in part by troubles during the height of the COVID-19 pandemic and loss of life related to its 737 MAX platform. We think Lockheed offers a much better risk/reward and a healthy dividend to boot. Lockheed Martin yields ~2.8% at the time of this writing. When Lockheed reported third-quarter results, the … Read more

There Will Be Volatility

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By Brian Nelson, CFA Last year, 2022, was a big test for equity investors, and the downside volatility that we witnessed during the year wasn’t comfortable, to say the least. Following the COVID-19 crash and rebound during 2020, and then the market surge in 2021, it wouldn’t be a stretch to say many investors’ heads are probably still spinning from all the volatility witnessed to start this decade. That said, part of what we’ve been warning about the past few years with respect to the equity market, especially in Value Trap, is that the proliferation of price-agnostic trading (e.g. quant, machine/algorithmic trading, etc.) will only lead to more and more market volatility, so while we were somewhat surprised by last … Read more

Honeywell Raises Outlook for 2023; Backlog Remains Strong

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By Brian Nelson, CFA On April 27, Honeywell International (HON) reported better-than-expected first-quarter 2023 results. In the period, revenue advanced 5.7%, while non-GAAP earnings per share exceeded the consensus forecast. Honeywell also raised its outlook for 2023 across the board, now expecting organic revenue growth in the range of 3%-6% (was 2%-5%) and adjusted earnings per share in the range of $9.00-$9.25 (was $8.60-$9.20). Though Honeywell didn’t raise its operating cash flow or free cash flow target guidance range for 2023, it’s still relatively early in the year, and we like the company’s top-line and earnings momentum supported by a backlog that advanced 6% on a year-over-year basis. Image: Honeywell continues to experience strong fundamental momentum across the board. Image … Read more

We’ve Updated Our Fair Value Estimate of Boeing; Has Aerospace Bottomed?

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Image: Boeing is expecting to turn the corner with respect to positive free cash flow in 2022 and grow it to ~$10 billion annually by 2025/2026. We think this is achievable. Image Source: Boeing By Brian Nelson, CFA The breakout of COVID-19 wreaked havoc on the airline business and the commercial aircraft-making business alike. But has the commercial aerospace industry finally bottomed? We took a hard look at our valuation model of Boeing (BA), and we’ve tweaked our near-term profitability assumptions and made material changes to our estimates of working capital assumptions in the out-years. Though the result was a lower fair value estimate for the aerospace giant, we reiterate that after several quarters of negative free cash flow, Boeing … Read more