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On Aug 6, 2013, we maintained our long-term recommendation on The Boeing Company (BA - Analyst Report) at Outperform.

Why the Reiteration?

Boeing, the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors, recently reported stellar second quarter 2013 results, buoyed by solid performance across the company's businesses.

Boeing’s adjusted second quarter 2013 earnings came in at $1.67 per share, beating the Zacks Consensus Estimate of $1.58 by 5.7% as well as the year-ago profit of $1.48 by 12.8%. The company’s strong numbers came from solid operating performance fueled by higher aircraft deliveries and lower 787 Dreamliner production costs.

Boeing is also one of the major players in the defense business, which accounts for approximately half of its top line. Boeing’s defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. At the end of the second quarter, backlog increased to a record $410.0 billion from $392.0 billion a year ago. Reported backlog included $40 billion of net orders during the quarter.

Although the company is faced with a number of technical glitches at its commercial aircraft business, its revenue and margins continue to remain solid driven by its broadly diversified programs, strong order bookings and order backlog.

If we set apart the second quarter earnings beat, the company also raised its top-line expectation for the year. Despite reporting flat revenues at $8.2 billion at Boeing Defense, Space & Security unit owing to the sequester, operating margin expanded 40 basis points to 9.5%.

Again, looking at its accounts, Boeing’s strong balance sheet and cash flows provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. Its diversified revenue stream provides a steady earnings stream leading to strong cash flows. After maintaining a stable payout for three years during the economic downturn, this aerospace behemoth boosted the dividend at the end of 2011 and made another significant increase at 2012 end. As Boeing speeds up its deliveries for this year and beyond, it could utilize the cash to continuously boost the dividend.

Shares of Boeing are going for about 16.5x the estimate for 2013, which is a premium to its peer group average of 16.37x. Though it looks a bit pricey, the investors may be willing to pay more given its solid fundamentals and its long-term expected earnings growth of 10.4%.

Boeing currently retains a Zacks Rank #3 (Hold). Despite the threat of domestic defense budget cuts, we believe BA will likely continue to boost profits from its more profitable programs (737, 777 and 787-10) as is evident from its raised guidance. Other defense behemoths defying gravity, aka the sequester, are Northrop Grumman Corp. (NOC - Analyst Report), General Dynamics Corp. (GD - Analyst Report) and Lockheed Martin Corp. (LMT - Analyst Report).

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