Investors seek reason to buy Boeing, aerospace after rally

Wed Jul 16, 2014 7:26am EDT
 
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By Alwyn Scott

NEW YORK (Reuters) - Despite booking billions of dollars in new plane orders at the year's biggest air show this week, Boeing Co (BA.N: Quote) and other aerospace companies approach second-quarter earnings as victims of their own success.

Boeing's stock soared nearly 80 percent last year, outperforming the Dow Jones Industrial Average and the S&P 500 index. Many suppliers to the world's biggest plane maker also beat the market.

But as indexes pushed higher this year, investors sent Boeing down 5.7 percent amid concern that the aviation business cycle may have peaked and that Boeing's ability to produce positive surprises is limited. Suppliers also suffered.

For the stock to rise, Boeing needs to notch up profit margins on jetliners, run its factories smoothly, and win price cuts from suppliers. It also must keep booking orders.

Last month, Dubai-based airline Emirates canceled a $16 billion deal for Airbus Group NV's (AIR.PA: Quote) new A350. More cancellations could spook investors and ripple down to suppliers such as Spirit Aerosystems Holdings Inc (SPR.N: Quote), Precision Castparts Corp PCP.N and Honeywell International Inc (HON.N: Quote).

Boeing is considered on track to deliver a record 715 to 725 jetliners this year, having delivered 342 in the first half. But hiccups in 787 Dreamliner production this year suggest Boeing may struggle to keep its promise to make jets even faster.

"They need to continue to crank 787s out and get cash flow on them," said Jim Reed, co-manager of the Global Equity Fund at Scout Investments, in Kansas City, Missouri, which holds about $185,000 worth of Boeing stock.

"And they need to move from producing 10 787s a month to 12 a month, like they say they're going to do" by mid-2016.   Continued...

 
Boeing 737 fuselages are delivered by BNSF train to a Boeing manufacturing site in Renton, Washington February 27, 2014.  REUTERS/Jason Redmond