During yesterday’s stock market swoon prompted by sliding oil prices, the biggest decliner was Boeing Co (BA). Boeing stock plunged 2.5%, after yet another problem emerged with BA’s Dreamliner 787 passenger jet. But investors have overreacted to Dreamliner problems before and the latest hand-wringing is no exception.
That makes Boeing stock a rare bargain now.
The carbon composite Dreamliner remains a “game changer” in aviation. The long-range mid-sized wide body passenger jet is fuel-efficient, less noisy and durable. It’s also a sleek and enjoyable ride, brimming with passenger amenities.
As one of the most advanced planes ever built, the Dreamliner also boasts the latest avionics and engines. Airlines around the world are eager to replace their aging, fuel-guzzling fleets and they’ve lined up in droves to order the Dreamliner.
Boeing has made a huge, high-visibility bet on the Dreamliner and as such, any glitch draws outsized attention. On Dec. 10, Boeing stock nosedived after the Chicago-based manufacturer revealed that Dreamliner engines made by General Electric Company (GE) are susceptible to ice-crystal formation when flying near thunderstorms. Ice crystals can impede the level of engine thrust, posing a safety risk.
Forgotten amid the bad news was this telling piece of good news: Congress this week approved $1.46 billion for 15 EA-18G attack jets built by Boeing. Lawmakers also granted Boeing an additional funding of $341 million to upgrade up to 12 of its AH-64 Apache helicopters.
Boeing’s importance as a job generator and its lobbying clout translate into reliable Pentagon largesse, year after year.
The last time BA investors headed for the fainting couch was earlier this year, when Dreamliner electrical system malfunctions stemming from faulty lithium-ion batteries came to light. However, after a rough few months for the company, the U.S. Federal Aviation Administration concluded that the problem was fixed and Boeing stock more than recovered.
This time around, Boeing will doubtless resolve its crystal ice formation woes and put them into the rearview mirror.
Meanwhile, this company is a brand-name behemoth boasting inherent strengths that make Boeing stock a solid long-term growth proposition. With its existing fleet of well-regarded civilian aircraft in addition to the Dreamliner, Boeing is positioned to benefit from the aircraft sector’s renaissance.
As the global economy recovers, increasing numbers of people are buying airline tickets, which in turn is prompting airlines to upgrade their fleets. After years of hard times in the wake of the Great Recession of 2008-2009, the entire aviation sector is flying high, especially in emerging markets where newly affluent consumers are keen to travel.
Parallel with the commercial industry’s return to vigor is consistently strong demand for military aircraft. Despite military budget cutbacks in the U.S. and Europe, America still churns out more foreign sales of weapons systems than any other country in the world, a dynamic that won’t change anytime soon, despite budgetary legerdemain in Washington, D.C. and foreign capitals.
The highest demand for fighter jets will come from regional hot spots now embroiled in arms races, especially in the Pacific Rim where China is flexing its military muscles. Boeing sells many advanced combat jets that are coveted by rising developing nations, notably the F/A-18 E/F Super Hornet.
Boeing Stock: Full Throttle Ahead
Boeing also has the upper hand in its dog fight for dominance with archrival Airbus Group NV. Airbus is a heavily subsidized Franco-German conglomerate that’s currently encountering production delays and snafus of its own. Boeing and Airbus perennially duke it out to claim the biggest number of civilian orders; a healthy backlog and new orders this year put Boeing on track to claim the title as world’s largest aircraft maker by revenue.
These favorable global economic and military trends continue to help BA rack up exceptional operating results. For the third quarter of 2013, Boeing reported revenue of $23.8 billion, a year-over-year increase of 7.8%, and earnings of $1.3 billion, a 19% increase from the same quarter a year ago. Earning jumped 23% to $1.86.
The latest problems with the Dreamliner are bound to prove ephemeral. As Boeing’s experts focus their well-honed engineering talents on this latest “crisis,” expect the glitch to get solved and Boeing stock to soar full throttle.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
