Although, the short-term outlook appears uncertain for the commercial aerospace and industrial companies, dictated by macroeconomic and political events in Europe and Asia, it looks bright in the longer view, which can be benchmarked by the large commercial airline backlog at the principal aircraft producers, says Richard L. Whittington, a Senior Equity Research Analyst at Drexel Hamilton, LLC.
“It is a split outlook in my estimation. The military-oriented contractors, which have seen very strong business fundamentals for the past decade in the aftermath of the terrorist attacks in 2001, are seeing a picture more dominated by tight government spending and fiscal circumstance,” he said. “It’s more about the backlogs. The backlogs extend, at present rates of production, nearly eight years, which is an unprecedented visibility and duration.”
Whittington likes The Boeing Company (BA) due to the company continuing to push forward on higher rates of production in its key commercial airliner models. He says Boeing should see its commercial profit margins rise 300 to 400 basis points over the next half-dozen years at the same time revenues increase, and that will significantly offset any declines in its military program.
“I see Boeing as a market share gainer within airliners, in general. Its latest model, the 787, should move from a steep loss position over the past couple of years of delay, heavy R&D and expense incursion to make some product fixes to a position of solid profitability, and perhaps, very high profitability late in the decade,” Whittington said.
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