Additionally, Lowe’s also plans to spend ~$1.3 billion annually in capex in the next two years. Spending on IT infrastructure is expected to be ~40% of the total capex, which includes the investment in lowes.com and other mobility functions. But the fact is that only ~1% of the total revenue is generated from sales through e-commerce.
Basically, the company plans to invest the entire revenue generated from e-commerce to capex. I think the home improvement categories are not well suited to the online channel; hence the growth in this segment will not match up to the amount of investment. Looking at the price at which Lowe’s is currently trading and considering the above facts I feel that it is the time to exit from this stock.
The Boeing Company (NYSE:BA)
Boeing’s 4Q12 result was better than expected. Its EPS was ~$1.28 against the estimate of ~$1.19 and the free cash flow was ~$3.7 billion against estimated ~$2 billion. EPS was driven by better commercial sales and margins which were fueled by higher delivery volume and lower R&D expenses. Free cash flow was driven by higher deliveries and better working capital management. This will further help the company to exercise its cash deployment strategy, which includes higher dividends and a restart of share repurchases.
Along with the result, came the initial guidance for 2013 and to be honest it seems a bit weak. According to the guidance, the free cash flow comes to ~$4 billion after adjusting for ~$1.5 billion for voluntary pension contribution. The reduced cash flow represents the revised schedule of deliveries of aircraft under the Boeing commercial aircraft segment.
According to the revised guidelines the number of aircraft is revised to ~635. The number of 787 Dreamliners in FY13 is expected to be ~60.
However, it is no secret that the 787 has been grounded recently because of regulatory authorities objections. In mid-Jan 2013, there were battery failures on two different 787 aircraft that caused fire in one and forced the other to make an emergency landing. Boeing has employed the necessary resources to bring the issue to a close. But recently it has announced that there may be a delay in delivery of the aircraft to a few airlines.
The long-term position of Boeing is strong and the stock is a buy because of the massive backlog of 4,373 aircraft. However, the very near-term position of the stock could remain volatile until a solution is found for the recent 787 challenges.
Conclusion
Weak agriculture and coal segment for Union Pacific will remain the reason that the company will face headwinds in the coming year. On the other hand, it is the right time to exit Lowe’s because of its unprofitable expenditure in e-commerce, and the late return expected from its line reviews and store resetting. And as for Boeing, there is no doubt that the company has strong backlogs. Conservatively speaking, most of its platforms are booked up to 2016. But the recent problems with the batteries of 787 Dreamliners that may result in a delay in deliveries of aircraft in 2013 has made the stock volatile in the short run.
The article Dear Edgar! I Beg to Differ This Time originally appeared on Fool.com and is written by Shweta Dubey.
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