Is it a bad sign if a business can't take advantage of trouble at its most important competitor? It's worth asking. This morning, Reuters reported that Boeing (NYSE:BA) expects to see exactly no gains as a result of ongoing delays with Airbus' A380 superjumbo.
Really? Either Boeing is being inexcusably coy, or production problems with its 787 transcontinental jet (which aims to cut fuel consumption by at least 20% for long-haul flights) are at least as serious as reported earlier, and maybe even more so. I'm more inclined to believe the former, though the latter is a very distinct possibility.
Why? The 787 design team has had problems with the composite material that is supposed to make the so-called "Dreamliner" lightweight and, thereby, cheaper and more fuel efficient to fly. For example, BusinessWeek and The Seattle Times reported in June that a 33-foot-long piece of the fuselage -- where the bulk of the weight will be carried -- had to be scrapped.
No further problems have been reported with the 787. Meanwhile, Boeing continues to widen the gap in orders over its French rival, thanks again to the Dreamliner. On Thursday, Boeing updated its order count to 632 for the year, 102 of which have been for 787s. Airbus had 222 orders as of the end of August.
That's a massive rift. Do you really believe that it has nothing to do with productions problems for the A380? I don't buy it. Instead, I wonder if I'm being spun like a top to reduce expectations from nosebleed levels. Seriously, look at how Boeing's stock compares to peers on a price-to-earnings-to-growth (PEG) basis:
|
Company / Industry |
PEG |
|---|---|
|
Boeing |
2.14 |
|
Industry: aerospace-major diversified |
1.73 |
|
Lockheed Martin (NYSE:LMT) |
1.50 |
|
Northrop Grumman (NYSE:NOC) |
1.44 |
|
Embraer (NYSE:ERJ) |
0.88 |
Get the picture? Relative to its expected five-year growth rate and its industry, Boeing sports a stratospheric valuation, at least as measured by the PEG. Ride along at that height if you must but, with expectations skyrocketing and manufacturing problems plaguing its newest aircraft, you'd better bring along a parachute. It may come in handy sooner than you think.
Prepare for take-off with related Foolishness:
- There's a red storm rising around Airbus.
- Airbus' problems began in June.
Embraer is a Motley Fool Stock Advisor selection. Ask for us an all-access pass and you'll get a backstage look at all of the stocks that are helping David and Tom Gardner beat the S&P 500 by more than 38% as of this writing. Go ahead; your pass is free for 30 days and there's no obligation to buy.
Fool contributor Tim Beyers has 33 picks in his Motley Fool CAPS portfolio, including Embraer, which he believes will outperform the S&P 500. He doesn't, however, have real money in the jet maker or in the stocks of any of the other firms mentioned in this article. What's your take on Boeing? Embraer? Get in the game and let us know. Meanwhile, you can get an inside peek at all the stocks Tim owns by checking his Fool profile. The Motley Fool's disclosure policy enjoys cruising altitude.
