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Boeing (BA) or Airbus (EADSY): Take Your Aerospace Pick
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Majority of the U.S. defense stocks rallied in Nov 2016 post Donald Trump’s victory. This was primarily driven by Trump’s hawkish comments about military spending. Coming to aerospace, this is fundamentally a strong and mature sector. While Trump’s victory is surely good news, there are numerous other avenues for growth for this sector.
Investment in advanced technology for high-tech intelligence equipment, which is increasingly replacing conventional guns and heavy armor, is creating demand in the aerospace space. In order to put a check on cybercrimes, President Obama proposed a $19 billion allocation in the fiscal 2017 budget, reflecting an increase of $5 billion over the fiscal 2016 figure.
In addition, defense companies are expanding their international presence, deriving a significant portion of the top line from foreign military sales. International sales are trending higher of late due to escalating regional conflicts, such as the Syrian civil war, the political unrest in Iraq, Yemen and Libya, and tensions in Eastern Europe. In addition to developed nations, a number of emerging markets like India, Japan, the United Arab Emirates, Saudi Arabia and Brazil are ramping up defense spending, which in turn is driving revenues for U.S. aerospace and defense companies.
Thanks to these factors, the aerospace sector has been a steady performer. In the third quarter of 2016, the sector registered 18.6% year-over-year growth in earnings, better than the S&P 500 members’ bottom-line improvement of 3.8%.
In the fourth quarter, earnings in the Aerospace sector are projected to grow 7% on the back of a 1.4% increase in the total revenue. Total earnings for the S&P 500 index are expected to be up 4.2% year over year on 3.8% higher revenues, despite 5 out the 16 sectors in the Zacks coverage universe witnessing growth in the negative territory. (For more details on earnings outlook, please refer to our weekly Earnings Trends report).
Let us focus on two major operators in the Aerospace & Defense space – The Boeing Company (BA - Free Report) and Airbus Group (EADSY - Free Report) .
At present, Boeing has a market capitalization of $97.71 billion, while that of Airbus is $54.33 billion. Let's see how these two companies fare on some key metrics.
Last 12-Month Return
In the last 12 months, Boeing’s stock has gained 29.6%, better than Airbus’ return of 15.5%.
Boeing’s return was better than the Zacks categorized Aerospace –Defense industry’s increase of 23.4% during this time frame, while Airbus underperformed.
Valuation
Boeing’s stock is presently trading at a forward P/E multiple of 17.2, more expensive than Airbus, which is trading a multiple of 13.1. Again, Boeing is trading a premium compared with the industry’s multiple of 16.6, while Airbus is trading at a discount. The premium is justified given Boeing’s wide spectrum of product offerings in both the commercial and defense markets.
Rank & Subindustry Ranking
Both Boeing and Airbus currently have a Zacks Rank #3 (Hold). The Aerospace – Defense Zacks Industry Rank #29 out of the 265 industries in our coverage is also impressive.
Commercial Aircraft Orders & Backlog
In 2016, Airbus logged net booking of 731 aircraft, beating Boeing’s figure of 668 planes.
At the end of 2016, total commercial airline industry backlog stood at 12,589 jets, out of which Airbus’ share was 55% or 6,874 aircraft, while Boeing has a 45% share or 5,715 aircraft.
Earnings Trend
Increasing demand of cost-efficient planes has been driving the performance of these two global aircraft manufacturers.
Boeing has outperformed the Zacks Consensus Estimate in three out of the last four quarters with an average earnings beat of 24.66%. Airbus is also riding high on strong order and delivered positive earnings surprises in the last four quarters.
Estimate Revision
For 2016, Boeing witnessed three upward and three downward estimate revisions in the last 60 days, increasing the Zacks Consensus Estimate by a penny to $7.12. For 2017, there have been six downward revisions and no upward revision. The Zacks Consensus Estimate for 2017 declined 1.7% to $9.19.
On the other hand, Airbus’ Zacks Consensus Estimate for 2016 and 2017 remained the same over the last 60 days at 97 cents and $1.33, respectively.
Long-Term Growth Expectations
For the long term (3–5 years), Airbus expects earnings growth of 17.5%, outpacing Boeing’s expectations of 13%.
Factors to Impact Results
Boeing is one of the major global players in the defense space. Its defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. President-elect Donald Trump is expected to introduce an increase in the U.S. defense budget, which would translate into a rise in defense orders for Boeing. The company had a defense backlog of $53 billion at the end of third-quarter 2016.
Airbus too has a significant presence in the defense space and is the leading defense company of Europe. The company offers high-quality products to its clients and currently has a backlog of €43 billion.
Dividend Yield
Boeing currently has a dividend yield of 2.46%, while that of Airbus is 1.58%. Both the companies’ current dividend yield fared better than the industry’s yield of 0.73%.
VGM Score
Since both these aerospace and defense heavyweights are fighting neck and neck, let us fall back on our VGM score. This score allows investors to eliminate the negative aspects of stocks and pick the winners.
Boeing currently has a VGM Score of A, while that of Airbus is D.
Stocks to Pick
Investors interested in the aerospace & defense industry may consider Lockheed Martin Corporation (LMT - Free Report) and Huntington Ingalls Industries Inc. (HII - Free Report) . While Lockheed Martin sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Final Call
Even though the companies hold the same rank, Airbus enjoys a lead in terms of long-term earnings growth and aircraft backlog while Boeing boasts a higher dividend yield and better investor return.
However, the scales tip in favor of Boeing when it comes to the VGM score.
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Boeing (BA) or Airbus (EADSY): Take Your Aerospace Pick
Majority of the U.S. defense stocks rallied in Nov 2016 post Donald Trump’s victory. This was primarily driven by Trump’s hawkish comments about military spending. Coming to aerospace, this is fundamentally a strong and mature sector. While Trump’s victory is surely good news, there are numerous other avenues for growth for this sector.
Investment in advanced technology for high-tech intelligence equipment, which is increasingly replacing conventional guns and heavy armor, is creating demand in the aerospace space. In order to put a check on cybercrimes, President Obama proposed a $19 billion allocation in the fiscal 2017 budget, reflecting an increase of $5 billion over the fiscal 2016 figure.
In addition, defense companies are expanding their international presence, deriving a significant portion of the top line from foreign military sales. International sales are trending higher of late due to escalating regional conflicts, such as the Syrian civil war, the political unrest in Iraq, Yemen and Libya, and tensions in Eastern Europe. In addition to developed nations, a number of emerging markets like India, Japan, the United Arab Emirates, Saudi Arabia and Brazil are ramping up defense spending, which in turn is driving revenues for U.S. aerospace and defense companies.
Thanks to these factors, the aerospace sector has been a steady performer. In the third quarter of 2016, the sector registered 18.6% year-over-year growth in earnings, better than the S&P 500 members’ bottom-line improvement of 3.8%.
In the fourth quarter, earnings in the Aerospace sector are projected to grow 7% on the back of a 1.4% increase in the total revenue. Total earnings for the S&P 500 index are expected to be up 4.2% year over year on 3.8% higher revenues, despite 5 out the 16 sectors in the Zacks coverage universe witnessing growth in the negative territory. (For more details on earnings outlook, please refer to our weekly Earnings Trends report).
Let us focus on two major operators in the Aerospace & Defense space – The Boeing Company (BA - Free Report) and Airbus Group (EADSY - Free Report) .
At present, Boeing has a market capitalization of $97.71 billion, while that of Airbus is $54.33 billion. Let's see how these two companies fare on some key metrics.
Last 12-Month Return
In the last 12 months, Boeing’s stock has gained 29.6%, better than Airbus’ return of 15.5%.
Boeing’s return was better than the Zacks categorized Aerospace –Defense industry’s increase of 23.4% during this time frame, while Airbus underperformed.
Valuation
Boeing’s stock is presently trading at a forward P/E multiple of 17.2, more expensive than Airbus, which is trading a multiple of 13.1. Again, Boeing is trading a premium compared with the industry’s multiple of 16.6, while Airbus is trading at a discount. The premium is justified given Boeing’s wide spectrum of product offerings in both the commercial and defense markets.
Rank & Subindustry Ranking
Both Boeing and Airbus currently have a Zacks Rank #3 (Hold). The Aerospace – Defense Zacks Industry Rank #29 out of the 265 industries in our coverage is also impressive.
Commercial Aircraft Orders & Backlog
In 2016, Airbus logged net booking of 731 aircraft, beating Boeing’s figure of 668 planes.
At the end of 2016, total commercial airline industry backlog stood at 12,589 jets, out of which Airbus’ share was 55% or 6,874 aircraft, while Boeing has a 45% share or 5,715 aircraft.
Earnings Trend
Increasing demand of cost-efficient planes has been driving the performance of these two global aircraft manufacturers.
Boeing has outperformed the Zacks Consensus Estimate in three out of the last four quarters with an average earnings beat of 24.66%. Airbus is also riding high on strong order and delivered positive earnings surprises in the last four quarters.
Estimate Revision
For 2016, Boeing witnessed three upward and three downward estimate revisions in the last 60 days, increasing the Zacks Consensus Estimate by a penny to $7.12. For 2017, there have been six downward revisions and no upward revision. The Zacks Consensus Estimate for 2017 declined 1.7% to $9.19.
On the other hand, Airbus’ Zacks Consensus Estimate for 2016 and 2017 remained the same over the last 60 days at 97 cents and $1.33, respectively.
Long-Term Growth Expectations
For the long term (3–5 years), Airbus expects earnings growth of 17.5%, outpacing Boeing’s expectations of 13%.
Factors to Impact Results
Boeing is one of the major global players in the defense space. Its defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. President-elect Donald Trump is expected to introduce an increase in the U.S. defense budget, which would translate into a rise in defense orders for Boeing. The company had a defense backlog of $53 billion at the end of third-quarter 2016.
Airbus too has a significant presence in the defense space and is the leading defense company of Europe. The company offers high-quality products to its clients and currently has a backlog of €43 billion.
Dividend Yield
Boeing currently has a dividend yield of 2.46%, while that of Airbus is 1.58%. Both the companies’ current dividend yield fared better than the industry’s yield of 0.73%.
VGM Score
Since both these aerospace and defense heavyweights are fighting neck and neck, let us fall back on our VGM score. This score allows investors to eliminate the negative aspects of stocks and pick the winners.
Boeing currently has a VGM Score of A, while that of Airbus is D.
Stocks to Pick
Investors interested in the aerospace & defense industry may consider Lockheed Martin Corporation (LMT - Free Report) and Huntington Ingalls Industries Inc. (HII - Free Report) . While Lockheed Martin sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Final Call
Even though the companies hold the same rank, Airbus enjoys a lead in terms of long-term earnings growth and aircraft backlog while Boeing boasts a higher dividend yield and better investor return.
However, the scales tip in favor of Boeing when it comes to the VGM score.
Zacks' Best Investment Ideas for Long-Term Profit
Today you can gain access to long-term trades with double and triple-digit profit potential rarely available to the public. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this private information? Click here >>