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Boeing Kept at Neutral

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We have maintained our Neutral recommendation on The Boeing Co. (BA - Free Report) on Nov 22, 2013. The aerospace giant currently carries a Zacks Rank #2 (Buy).

Why the Reiteration?

The reiteration takes into account Boeing’s stellar third quarter results, its operational excellence and a robust backlog. However, budget deficits and political uncertainty accompanied with technical flaws of the 787 keep us a little cautious for now.

Boeing is the world's leading aerospace company and best known as the largest manufacturer of commercial jetliners. It is also one of the largest aerospace and defense contractors apart from Lockheed Martin Corp. (LMT - Free Report) , Northrop Grumman Corp. (NOC - Free Report) and General Dynamics Corp. (GD - Free Report) .

The plane maker has raised its forecast on the broader commercial aircraft business despite the Dreamliner’s much publicized glitches. Sequestration and budget cuts notwithstanding, its defense segment maintained a solid performance and fetched $7 billion in fresh new orders during the third quarter. Backlog also increased to a record $415.1 billion from $410.3 billion in the preceding quarter.

The robust results from its commercial airplane biz, which delivered more planes at higher profit margins in the quarter, helped offset the weakness in the defense division, where revenues rose just 3%, margins contracted and profits were cut down.

Internationally, the company is witnessing strong demand for its defense products, such as, fighter jets, the rotorcraft line-up and 737-based military derivatives.

The gradual recovery in the global economy has led to a steady improvement in passenger and freight traffic. This is amply reflected in Boeing’s swelling order book. The company was able to secure net bookings of 805 airplanes in 2011, which jumped to 1,203 airplanes in 2012. Fresh bookings continue to come in this year. Boeing won net orders for 200 planes in the Sep 2013 quarter. Backlog at third quarter 2013 end remained strong with more than 4,800 airplanes valued at a record $345 billion.

Recently, the company won a sizeable contract on the first day of the Dubai Airshow, sealing an approximately $25.2 billion deal at list prices with Etihad Airways for its revamped 777 long-haul jet.

However, the 787 Dreamliner has been beset by problems from the very beginning and this year has seen no end to Dreamliner worries. Issues pertaining to the plane’s reliability and safety still harass airline operators and Boeing engineers.

Again, a large percentage of Boeing’s business is generated within the U.S. and government sales accounted for 33% of total revenues in 2012. The tepid recovery of the U.S. economy raises fears of further cutbacks in defense budgets, which will likely affect Boeing’s prospects.

Other Stocks to Consider

Apart from Boeing, some well-placed stocks in the same sector include Lockheed Martin, Northrop Grumman and Huntington Ingalls Industries, Inc. (HII). All these stocks presently hold a Zacks Rank #2 (Buy).

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