Is It Safe? Don't Scrap Boeing on Dreamliner

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Boeing(BA Quote) made headlines last week by delaying the release of its 787 Dreamliner, prompting criticism from analysts. But the company's stock remains attractive as a robust backlog compensates for a lackluster financial position, weakened margins and recent "communications glitches."

Chicago-based Boeing said the Dreamliner needed additional wing reinforcements before it could take its maiden flight. It was the sixth time the company had postponed the flight. Boeing shares dropped 14% amid downgrades from Oppenheimer Holdings and Morgan Stanley.

Analysts said management waited too long to disclose the Dreamliner's problems, making previously optimistic forecasts seem misleading. While I sympathize with investors' frustration, a 14% decline seems like an overreaction. And, from a safety perspective, postponing the inaugural flight is justifiable.

To be sure, there are plenty of reasons to shun Boeing. The company missed analysts' first-quarter earnings expectations after suffering a fourth-quarter loss. Net income fell by half to $610 million as revenue declined 3% to $16.5 billion. The company blamed weak performance in the commercial airplanes segment, higher research and development costs, and a 38-cent charge to scale back production of twin-aisle aircraft.

Boeing's balance sheet has seen better days. Since the prior year's first quarter, the company's cash has fallen by almost half to $4.5 billion. Its debt has grown 13% to $9.3 billion. The net margin has declined 388 basis points to a meager 3.7%, reflecting weakened profitability.

Still, a $339 billion backlog should assuage investors' worries. Although the economic downturn has eroded Boeing's pricing power in its commercial airplane and defense businesses, the company should benefit from a healthy portion of government defense contracts in 2010. The company has forecast double-digit earnings growth this year.