737 and 777, Old Work Horses, Burnish Boeing’s Results

When last YCharts weighed in on Boeing (BA) shares, we looked past the botched 787 rollout and focused on the defense business, which accounts for about half of the company’s sales and which also seems certain to come under strong pressure as the federal government moves to finally rein in its runaway spending.

Since then, there has been more bad news for the 787 launch, nicely detailed in this story and timeline from the Chicago Tribune’s Julie Johnsson. Most disconcerting about the 787 debacle has been Boeing management’s apparent confidence that each screw-up and delay would be the last.

But other news has surfaced, too, in recent months, making Boeing shares more attractive to some investors. One, deliveries of its commercial airliners showed an increase in the third quarter, driven by Boeing’s work horses, the 737 and 777. The increased willingness of airlines to take on new planes led Boeing to twice bump up production rates for the narrow-body 737, ultimately to 38 planes a month by the second quarter of 2013 from 31.5 currently. And it also twice raised 777 production rates, with the ultimate plan at 8.3 per month by early 2013 from the current rate of five.

Unlike the troubled 787 program, these older airplane models are reliable programs at Boeing. The first 737 began flying commercial in 1968, and Boeing has won orders for 6,000 of the jets over time. 777s have been flying for 15 years.

The second bit of good news: Boeing’s defense unit, though still suffering from revenue declines, was able to increase its order backlog after the U.S. Navy decided to buy 124 combat planes, a mix of F/A-18s and EA-18Gs, for about $5.3 billion.

At the current stock price, Boeing trades at a reasonable 14 times trailing earnings and, for those comparing returns with bonds, its earnings yield is above 7%.

BA Stock Chart by YCharts

The 42-cent quarterly dividend is yielding more than 2.5%, which is a lot more than your bank is paying for deposits, right?

BA Stock Chart by YCharts

Even with a likely decline in defense spending in coming years, the growth in jetliner production seems to argue for buying Boeing shares. YCharts Pro finds the stock undervalued and with good fundamentals.

But here’s another chart to consider:

Crude Oil Spot Price Chart by YCharts

Remember when oil prices went well past $100 a barrel, sending jet fuel prices spiking and causing huge losses at airlines around the world? That, of course, caused some big airlines to push off deliveries from Boeing and Airbus, and it could easily happen again. The global economy, heating up now, seems likely to push oil prices higher. Fuel represents about one third of many airlines’ total costs, and with margins razor thin in that industry, a steep rise in fuel prices could snuff out the recovery in the airline sector. For Boeing, it’s a Catch 22: it needs a stronger economy to spur demand for air travel and new planes; but too much global growth could send oil prices skyward, dampening airlines’ enthusiasm for new planes.

The other question mark is the 787. (No use calling it a Dreamliner until it actually starts living up to all the promises Boeing made on its behalf.) Maybe the latest snafu will be the last, and deliveries for the fuel-efficient plane will truly begin. Even if they do, Boeing still has to ramp production up, and to date it has found piecing together the planes a tricky job.

The shares look better, with 737 and 777 business picking up, but Boeing remains a stock full of risk.



Please note that this feature is only available as an add-on to YCharts subscriptions.

Please note that this feature requires full activation of your account and is not permitted during the free trial period.

Start My Free Trial {{root.upsell.info.call_to_action}} No credit card required.

Already a subscriber? Sign in.