Message-ID: <32702486.1075862155294.JavaMail.evans@thyme> Date: Fri, 16 Nov 2001 16:29:05 -0800 (PST) From: moneyadm2@timeinc.net To: sivy@listserv.pathfinder.com Subject: Sivy on Stocks: Boeing in the bargain bin Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Sivy on Stocks X-To: SIVY@LISTSERV.PATHFINDER.COM X-cc: X-bcc: X-Folder: \PKEAVEY (Non-Privileged)\Keavey, Peter F.\Deleted Items X-Origin: Keavey-P X-FileName: PKEAVEY (Non-Privileged).pst SIVY ON STOCKS from CNNmoney.com November 16, 2001 ******************[ A D V E R T I S E M E N T ]**************** QUICK! If you won $25,000 CASH what would be on your "Best Of" list? Keep thinking because here's a chance to try to win the $25,000 Grand Prize. BONUS: See what else has been selected "Best Of" at money.com and try an issue of MONEY Magazine FREE! Click Here: http://www.money.com/bestof **************************************************************** Boeing in the bargain bin The airline industry is reeling -- and the leading U.S. maker of commercial aircraft is down to 11 times earnings. By Michael Sivy NEW YORK (CNN/Money) - This year has been a nightmare for the airline industry. The Sept. 11 attacks showed that a fully fueled airplane is the handiest terrorist weapon short of a portable atomic bomb. Recurrent airport security failures and last week's crash of an American Airlines Airbus A300 shortly after takeoff from New York City's John F. Kennedy Airport made travelers even more anxious. Air traffic is running at least 10 percent below normal seasonal levels. In the highly leveraged airline industry, profits are sensitive to even small changes in traffic. So the current drop-off has devastated earnings. As a result, airline stocks are down 40 percent since early September. This miserable business climate has also hurt industry suppliers -- particularly Boeing, the leading U.S. maker of commercial aircraft, which closed at $35.00 on Friday, up 76 cents. The company is also having problems in other facets of its business, such as military contracts. The cumulative effect has been to drive the stock down to its lowest valuation in nearly a decade. When Boeing acquired McDonnell Douglas in 1997, the company hoped it was ensuring a lock on the commercial aircraft market by eliminating a rival. Since that deal closed, however, the European airplane manufacturer Airbus has become a much tougher competitor. In addition, Boeing overexpanded in the late 1990s, leading to a sharp drop in operating margins. Recently, many airlines have been postponing delivery of planes they have ordered. Continental, for instance, which has been losing as much as $5 million a day since Sept. 11, is taking delivery of 24 planes but may defer another 47. And on top of all that, Boeing lost an important military contract to Lockheed Martin last month. None of these setbacks is permanent, however. Terrorism can be contained, and public confidence will return. Despite all the scares of the past few months, flying is still far less risky than getting in a car. Boeing CEO Phil Condit acknowledges that the company's business may lag for as long as three and a half years. But a global economic upturn will revive orders that have been postponed as airlines eventually have to replace aging planes. When the upturn comes, Airbus will be able to retain some of the market share it has captured since it topped Boeing in 1999. But the European consortium has made a big bet on the very largest planes, while Boeing is using its military know-how to improve the speed and fuel-efficiency on regular-size jets that account for a larger percentage of the overall market. This strategy should greatly improve profit margins even if the company cedes some share to Airbus. When Lockheed won the Joint Strike Fighter project in October, Boeing lost out on the military contract of the decade. The deal could ultimately be worth $200 billion domestically and more in international sales. But the Pentagon does not want Lockheed to become the sole viable U.S. aerospace contractor. So Boeing will likely receive extensive subcontracting opportunities on the JSF and other smaller defense contracts over the next few years. Boeing's earnings for 2001 should rise 25 percent from last year's depressed levels. But results will slip back some next year as deliveries are delayed. Even allowing for that dip in profits, Boeing's stock is dirt cheap. At a current share price of $34, Boeing trades at only 11 times next year's projected earnings. Even more striking, the stock goes for only six times cash flow. That's about the cheapest that industrial companies ever get. Since 1997, Boeing has used some of that cash to purchase more than 12 percent of its outstanding stock. And further massive share buybacks are planned for the next couple of years. It's true that a full recovery for this stock could take as long as six years. But Boeing remains an essential company for U.S. commercial and military aviation. Even partial progress would move the share price substantially higher. And ultimately, the share price could easily reach double or even triple current levels. That's the kind of payoff that makes a long wait worthwhile. ### Read all of Michael's columns at: http://money.cnn.com/markets/sivy/ To subscribe or unsubscribe to Sivy on Stocks, go to: http://money.cnn.com/email/ -------------------------------------------------- SPECIAL OFFER - MONEY MAGAZINE PERSONAL FINANCE COACHING SYSTEM Tap the expertise of MONEY for your specific personal finance needs with the help of a one-to-one coach... 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