The Boeing Company (BA)

LEGMAKER (< 20) Submitted: 5/12/08 9:40 AM : Start Price: $84.03 BA Score: -8.53

At these levels Boeing looks great. I was waiting for a pop to create some upward momentum in the stock before looking to recommend it. I have never seen a stock so well positioned have so much bad news and management decisions in my life. From bribing Government officials to delaying the release of the Dreamliner multiple times, it has only turned into a massive buying opportunity. I believe this level is excellent and if you have been waiting, don't wait any longer just dive right in. The multiyear growth in the aerospace industry will start being realized now even though it probably won't start for a few months. Look for massive mutual fund buying over the next few months on valuation.





As always, as a trader you should check the chart with respect to short term. Never pick a stock that is trending down and has not broken its moving average, unless you are shorting it. April 23rd, Boeing experienced a triple top breakout, which basically means it broke through a major point of resistance. The current chart looks to have a bullish run up to $92. This stock had a value of $107 last July and even at those values long term the stock looked good. Right now you can ride the stock to $90 to be safe and the jump out.





The reason for the breakout was a nice move in the stock following first quarter earnings. Earnings jumped 38% year over year on improved orders. Also, companies like Goodrich crushed earnings on demand for their products that go into both Boeing and Airbus models. Boeing earned $1.62 per share vs. the Street's estimates of $1.35. The commercial airplane division saw operating income increase by 39%. The defense division was up 10%. Backlog is at an all time record of $346 billion. They reaffirmed their 2008 target and upped their target for next year, as many of their planes are moving to next year with the backlog and late deliveries.





The big story is the Dreamliner and its decrease in fuel usage. Estimates have the Dreamliner using 20% less energy. Fuel is the whole reason why the airliner industry is consolidating in the United States. It would be my guess that there will be very large orders as soon as the consolidation process can allow them to raise rates and decrease wages to their employees. The reason I am saying this is not why to get long the company but look at it as a trade to the $90 level I was speaking of earlier.





It is very important to watch the analysts with respect to a stock pulling out of a downtrend. The current EPS estimates have been downgraded 13 times with respect to Boeing for this quarter over the last month. There are 14 downgrades for next quarter. With all of these downgrades and BA beating estimates for the quarter, we could see quite a few revisions upward. I would expect those to come in over the next few weeks.





Also, I think the full year EPS is low as analysts are forecasting growth of 13.3% this year. I believe Boeing will have $6.20 of earnings this year, providing earnings growth of 17.9%. The proper PE for the stock will come in at around 19 with this growth. That puts a full year estimate at $117.80 and very nice growth with respect to current valuation.

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