Among the largest global aircraft manufacturers, The Boeing Company (NYSE:BA) has been in the news recently owing to its latest, highly innovative, and complex product, the 787 Dreamliner. The Boeing Company (NYSE:BA)’s plans of creating a fuel efficient aircraft that could fly long routes has been caught up in a series of hazardous mishaps, compelling the authorities to review its functioning.
However, Boeing has modestly rallied, and with almost a month away from its next earnings call, let us analyze and check if it’s a good investment bet.
Demand is increasing and so are Boeing’s production rates
The Boeing Company (NYSE:BA) has conclusively decided to pump up production rates for its commercial aircrafts, even though authorities have grounded most of its 787 Dreamliners. Obviously, the company must have researched well into the demand conditions prevailing in the market before going for such a decision. As per data from commercial airliners and industry data aggregators, passenger traffic is growing rapidly as a result of a plethora of deals being provided by air suppliers, and more so by airline aggregators.
From an economics point of view, passenger traffic and aircrafts can be fairly viewed as complementary goods, and hence, a spur in traffic is coming to aircraft manufacturers as higher demand for aircrafts. Well, this is something to be happy about as the company has got good business ahead, and the decision to increase production has been taken at the right time to leverage excessive demand.
The tough get going
A good number of investors gave up on the company’s stock after its latest product, the 787 Dreamliner, was hit by questions from authorities. Surprisingly though, the stock has rallied more than 30% to a price of around $85, which is being regretted by investors and analysts alike who gave up on the stock.
You might think of this as a one-time strange phenomenon. However, I would like to differ on such analogy. An upward movement of more than 30% during such unfavorable period suggests that there is still something keeping investors optimistic. We have to understand that it’s only one of its huge portfolio of products that is in question, and the rest of its business is still going strong based on robust fundamentals.
A look at industry rivals
In the world of commercial aircrafts there are only two ruling giants, one of which is The Boeing Company (NYSE:BA) and the other is Airbus. In its latest press release, Airbus highlighted that Asia-Pacific will drive global demand for high eco-efficient aircrafts over the next two decades, and will take delivery of around 10,000 new passenger and cargo aircrafts during this period.
This proves the abundant demand for aircrafts, which will range from wide-bodied to huge ones that have a seating capacity of at least 400 passengers. Both The Boeing Company (NYSE:BA) and Airbus have a complete range of products that will meet the needs of such markets making efficiency the key metric in the decision making process. Boeing has already made a move into making eco-efficient aircrafts with the 787 Dreamliner.
In the defense and security space, Boeing faces competition from Lockheed Martin Corporation (NYSE:LMT), which has an innovative and exhaustive range of defense aircrafts in its product portfolio. If we just take 2012 revenues as a comparative metric, then we would find that Lockheed Martin Corporation (NYSE:LMT) leads the charge as its business model is comprehensive, and entails more revenue generation streams, specifically in terms of IT services. However, Boeing supersedes Lockheed Martin Corporation (NYSE:LMT) when we just talk of military aircrafts and other tangible product offerings.
Another company that poses good competition to Boeing, or better say the defense segment of The Boeing Company (NYSE:BA), is United Technologies Corporation (NYSE:UTX), whose YTX Aerospace systems division produces aircraft systems that control essential functionalities like taking off, landing, and in-flight management.
An impressive point in its last earnings call was a highly positive guidance for 2013, wherein the company has estimated sales growth of 10-12%, and earnings growth in the range of 10-16%. I must say that United Technologies has not disappointed investors when it comes to the basic expectations with respect to dividend ($0.535 per share) and future guidance.
More and more business ahead
The Boeing Company (NYSE:BA)’s annual report highlighted a delivery of 601 jets during the year 2012, making it the leading jet maker. My belief is that it’s going to go further up in 2013, as the company reported a record backlog of $319 billion for 4400 airplanes. It’s needless to say that the company has got great business ahead of it, and its competitive position, specifically in the commercial aviation sector will aid in realizing optimal advantage from these opportunities.
The bottom line
I am pretty sure that investors who maintained their position in the stock as it rallied from $64 to the current levels would have been amazed at such capital appreciation. It has been pushing its way through rough times, and has created phenomenal value for those who did not give it up.
In conclusion, I would ask you not to regret if you missed out on the 30% rally in the stock. But, it would make sense to keep this giant in your portfolio for the long run.
The article Allow This Stock to Take Your Portfolio to New Heights originally appeared on Fool.com and is written by Mihir Mehta.
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