On Wednesday morning, Boeing (BA) reported first-quarter earnings that exceeded analysts' estimates, but also lowered its forecasts for future earnings. These mediocre results come at a time when Boeing is facing yet another twist in the endless process of bidding for a big government contract, but is making progress in getting its 787 Dreamliner off the ground. (The 787 is a $166 million per unit, 250- to 330-seat passenger aircraft with 865 orders and an estimated $150.6 billion backlog; it has been delayed six times over the last two years).
So is Boeing stock a buy or has it already run its upward course?
Before getting into this question, let's examine Boeing's first-quarter report. Boeing reported earnings of $519 million, or 70 cents a share, down 15% and 19%, respectively, from $610 million and 86 cents a share, in the first quarter of 2009. Boeing's sales fell 8% to $15.2 billion from $16.5 billion.
But compared to analysts' estimates, Boeing's report was mixed. FactSet Research polled analysts who expected Boeing to report 66 cents a share on sales of $15.4 billion. So Boeing exceeded earnings expectations by 6%, but its sales were $200 million below expectations
And Boeing cut its earnings guidance for 2010 by 5%. Specifically, Boeing replaced a 2010 EPS forecast of between $3.70 and $4.00 a share with a range of between $3.50 and $3.80 a share.
Clearing Skies Ahead for 787, but Fresh Turbulence for Tanker Deal
Meanwhile, Boeing announced some good news on the 787 front. According to The Seattle Times, the 787 Dreamliner is now at the point where Federal Aviation Administration officials can board the aircraft during test runs to take their own readings on its performance. And Boeing claims it is now on track to deliver the 787 to its first customer, Japan's All Nippon Airways, by the end of 2010.
However, Boeing's years-long, drama-filled attempt to win a $50 billion contract to supply airborne refueling tankers to the U.S. Air Force has taken a new plot twist. The company had hoped to enjoy an uncompetitive bidding process after rival Northrop Grumman (NOC) dropped out of its joint bid with Europe's EADS, parent of Airbus. Instead, Boeing will face a solo bid from EADS, which has been granted an additional 60 days to prepare an entry with Airbus as the prime contractor.
The question for investors is whether to invest in Boeing stock at this point. Based on its Price/Earnings to Growth (PEG) ratio, a measure of a company's market value compared to its expected earnings growth, Boeing's stock is pricey. That's because Boeing's PEG of 1.8 is high: I think a PEG of 1.0 means a stock is fairly valued. Boeing's 1.8 PEG number is calculated by dividing its P/E of 38.8 by its earnings growth forecast of 21.5% to $4.67 in 2011.
So Boeing isn't a buy today, but if you had the good fortune to scoop up its shares when they were around their 52-week low of $35.94, hold into them.
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