The computer-generated images of the new Boeing 787 jetliner in flight have captured the attention of airplane buffs, just as orders for the plane have enchanted investors in Boeing stock.
An initial flight of the 787 isn’t expected until September. In the meantime, Chicago-based Boeing is giving the stock market a lift for another reason.
Amid the usual low-balling of quarterly earnings estimates for major companies, analysts are remarkably upbeat about the growth and quality of Boeing’s profits. If optimism toward Boeing is met or exceeded when the company reports results July 25, the stock market rally could have another boost.
Generally, forecasts by stock analysts of the year-over-year change in quarterly earnings per share tend to drift lower as the actual announcements near. As a result, profits often appear surprisingly strong, relative to the estimates, and, voila, stock prices enjoy a bounce.
But in Boeing’s case, analysts mostly have been raising their estimates for second-quarter results, with a current consensus increase of $1.16 a share, up from a loss of 22 cents a share in the second quarter of 2006, according to corporate research service StarMine. Analysts with the best records of forecasting Boeing’s results have issued the largest upward revisions, StarMine data show.
Boeing’s expected second-quarter rebound is important because of the company’s size. Thomson Financial estimates that without Boeing, the earnings per share growth of the S&P 500 index would be 3.7 percent in the quarter ended June 30, instead of the 4.2 percent currently forecast.
First-quarter earnings per share were 10 percent higher than the consensus estimate. In the fourth quarter, the actual number was 32 percent above the forecast.
Moreover, the quality of Boeing’s results has increased sharply in recent years. That means Boeing’s profitability is more sustainable, said Tim Gaumer, director of fundamental research at StarMine.
More of the net earnings are cash profits instead of accounting-based income, such as accounts receivable.
On StarMine’s earnings-quality scale of zero to 100, Boeing jumped from a rank of 48 in the third quarter of 2005 to 98 in the first quarter of this year.
“This has been fairly predictive of the company’s stock price appreciation,” Gaumer said.
One indicator of earnings quality, the return on capital invested in the business, has more than doubled since the third quarter of 2005. Costs were squeezed without starving research and development.
Profit growth reflects improved profit margins and the greater efficiency in turning a dollar of company assets into a dollar of sales. The biggest impediment to bottom-line results in the first quarter was an increase in the company’s effective tax rate to 35.5 percent from 12 percent two years earlier.
The upbeat analysis of Boeing’s published results doesn’t take into account gains in second-quarter earnings per share that could emerge from the weak dollar, which could enhance the dollar value of overseas sales, and a reduction in shares through share repurchases, which could boost earnings per share. Boeing repurchased 4 million shares in the first quarter, ending the quarter with 787 million shares outstanding.
———-
bbarnhart@tribune.com
