Happy days are here at last. Boeing (NYSE: BA) shareholders, braced for disappointment in yesterday's earnings release, were instead greeted with profits that far outpaced Wall Street's projections.

The plane maker earned a whopping $1.62 per share last quarter, 43% better than in Q1 2007, crediting commercial plane orders, as well as deliveries of V-22 Ospreys (manufactured jointly with Textron (NYSE: TXT)) for its success. Looking farther out, management reaffirmed its previous guidance for this year and the next -- $5.70 to $5.85 per share, earned on roughly $67.5 billion in revenue this year, and $6.90 to $7.00 on approximately $72.5 billion in 2009.

The big story
But that's not what you want to hear about, right? You want to know what's up with Boeing's vaunted 787 Dreamliner. Well, good news: Management confirms that it's sticking with its production schedule announced ... all of two weeks ago. (You might think that goes without saying, but after three consecutive multi-month postponements, we're taking nothing for granted anymore.) Boeing confirmed that the 787's GE (NYSE: GE) engine has received its "airworthiness certification," predicted the bird will take its first flight in Q4 2008, and estimated that deliveries will commence in Q3 2009.

The deluge of delay announcements doesn't appear to be dulling the Dreamliner's attractiveness to buyers. Boeing confirms that it received 75 new orders for this Logistical Nightmare Liner in Q1 alone. (From whom, Boeing did not say, but we know that several major airlines, United (Nasdaq: UAUA) and American Airlines (NYSE: AMR) included, had previously been holding off on making their purchases.)

The steady stream of sales is affecting Boeing's backlog, too, inflating this figure to an incredible $346 billion in orders waiting to be filled. For context, here's how the backlog levels stand at a few of Boeing's aero-rivals:

  • Northrop Grumman (NYSE: NOC): $64 billion
  • Lockheed Martin (NYSE: LMT): $75 billion, and dropping
  • Textron: $22 billion and rising sharply
  • EADS: $539 billion and rising

For all the wailing and gnashing of teeth over Boeing's loss of the KC-X Tanker contract to Northrop, I see no end in sight to Boeing's sales growth. In Q1, for example, revenue at Boeing grew a bare 4% relative to Q1 2007, but backlog is rising much faster -- up 32%. The longer backlog accelerates faster than sales, the faster you can expect sales to race ahead in future years as they try to catch up.

Free cash flow
Then again, we don't invest in companies just because they can sell, but because we hope they can earn profits on those sales. How's Boeing doing in that regard? You already know the GAAP story, so I'll focus here instead on Boeing's cash profits -- its free cash flow.

Boeing generated $5.5 billion in free cash flow in 2005, then $5.8 billion in 2006, and $7.9 billion last year. Nice trend, eh? However, this year will be a bit lighter. According to Boeing, the $1.5 billion it generated in Q1 was the high point for the year. By Dec. 31, the company will have booked just $700 million, since building all those 787s devours cash.

Those profits will resurface next year, however, as deliveries begin flowing. Boeing predicts free cash flow exceeding $4.3 billion in 2009. Now, average the free cash flow generated over the last three years, with expectations for the next two, and the way I see it, we're looking at a company capable of generating about $4.8 billion in free cash flow per year. Thus, Boeing looks cheap to me today, trading at about 13 times its average free cash flow.

Blue skies ahead
In fact, though, let me go out on a wing here and argue that Boeing could be even cheaper than that. We've already covered the company's prospects for raking in beaucoup sales over the next several years. But I haven't yet mentioned that Boeing expects to earn operating margins of 11% to 11.5% on those sales -- a level of profitability the company hasn't seen in recent memory.

If Boeing delivers on this promise, I expect its cash flows in future years could more closely resemble last year's big number than this year's lowered projections. If so, Boeing's a bona fide bargain at today's price.

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