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April 27, 2005
Getting a handle on BA, Wed., April 27, 2005, 3:11 PM
I thought we might be getting a handle on Boeing with today's earnings report and guidance, and the straight-forward news report from Reuters, but I am left to believe " right or wrong " that possibly PR firm Hill & Knowlton has written their news releases.
Was I surprised to see discussion that BA had significantly beaten expectations. The last time I looked at Value Line (a March 25 report by Morton Siegel), the 1Q05 earnings forecast, net of special tax considerations, was $0.75, not $0.55. So how does 66 cents minus 14 cents = 52 cents beat a fairly middle-of-the-road Value Line estimate of $0.75?
Anyway, I put this down to being just more spin as large capital pools dump some stock on unsuspecting buyers.
Package that hype with the carefully sequenced news this week " three consecutive days of Air India, Air Canada and Northwest Air purchase orders " and it's no wonder that the stock price is up almost one pct on the day. But, for how long?
Boeing Earnings Fall as Margins Shrink
NEW YORK (Reuters) " Wed Apr 27, 2005 09:11 AM ET
"Boeing Co. on Wednesday said quarterly earnings fell 14 percent as the leading U.S. aerospace group grappled with higher pension and compensation costs and slimmer operating margins.
The Chicago-based commercial jet maker and defense contractor earned $535 million, or 66 cents per share, in the first quarter, down from $623 million, or 77 cents per share, a year earlier.
The earnings included a benefit of 14 cents a share from interest on a tax refund. The year-earlier results benefited from a similar gain of 12 cents a share.
Analysts' average earnings forecast was 55 cents per share, excluding special items such as the tax benefit, according to Reuters Estimates.
Sales edged up 1 percent to $12.99 billion, lagging a forecast of $13.49 billion.
Operating earnings slid 17 percent to $687 million as the company's operating margin shrunk by 1.1 percentage points to 5.3 percent.
Boeing stood by its previous earnings guidance for the rest of 2005, forecasting full-year earnings of $2.40 to $2.60 per share.
Boeing, which is the No. 1 U.S. exporter, also reiterated its previous forecast for commercial airplane deliveries of about 320 planes in 2005 and 375 to 385 in 2006. "
As for me, in spite of my belief that fuel oil prices are on the way down, I still think BA is over-priced, but then again I would be hard pressed to think about another Dow 30 component I have been so wrong about in the past year.
Like a broken clock, I'm hoping to be right some time.
I note that the Value Line estimate for 2005 earnings is $2.50 (including a $0.75 first quarter), so that would likely now be $2.30.
I multiply that $2.30 by an average annual PE of 15 for BA and come up with a fair value of $34.50, which is a long way from $60. Even at 18 times $2.40, that's just $43.20, and last time I looked was still a long way from $60.
Posted by Posted by Bill Cara on April 27, 2005 03:12:11 PM | Category: 20 Industrials
I have just started reading your blog recently, and enjoy it thoroughly.
I may be able to shed some light on the BA issue. If you look at the P/FCF, it is only 19x. That gives you a 5% FCF yield, which is a pretty decent alternative to the long bond, in a true blue chip. Nor can one say that the earnings are peak earnings - they peaked in 2001, dropped through last year and the forward guidance is higher than the current estimates.
Perception is reality, and hence, the stock finds support. If the forward guidance proves to be wrong, watch out below. That said, the airline industry is priced for armageddon, and any improvement there would be a boon to this company.
Posted by: Achal at April 27, 2005 5:13 PM [link]