Boeing Sags but Analysts Like 787 Production Outlook

CHICAGO ( TheStreet) -- In the latest chapter of the melodrama "What can possibly cloud the outlook for Boeing ( BA) shares?" we have tornadoes in Kansas.

That is because a tornado on April 14 in Wichita damaged a plant operated by Spirit AeroSystems ( SPR), a Boeing supplier that makes the nose section for the 787 and works on fuselages for other planes. Boeing's assessment of the impact is likely to be a topic on its earnings call Wednesday morning.

In general, analysts aren't overly concerned about a decline in what may be the most closely watched Boeing indicator, the 787 production schedule. Currently, the rate is projected to increase to 3.5 a month by mid-year and to 10 a month by the end of 2013. Additionally, Boeing has its share of good news, including the scheduled Friday rollout the first 787 produced in Charleston, S.C., as well as recent reports that the company has pulled ahead of Airbus in talks with United Continental ( UAL), the world's largest airline, in securing an order for close to 200 narrowbody aircraft.

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Analysts surveyed by Thomson Reuters expect earnings of 94 cents a share on revenue of $18.4 billion, up from 78 cents a share on revenue of $14.9 billion in the same quarter a year earlier.

BB&T analyst Carter Leake said the likelihood that Boeing will meet its 787 production target rates is improving.

"Boeing has met its interim milestones without the much-feared strain to the supply chain"," he said. "The next set of rate (targets) will be tougher, but the Street is warning up to the fact that Boeing may in fact hit its 10 per month goal by year-end 2013. Charleston production is an integral part of that 10 per month."

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As for Wichita, Leake said that "in the worst case, it would mean a slight shift of deliveries from the second quarter to the third quarter." Even in the case of a 57-day 2008 strike by the International Association of Machinists, "we had mostly recovered by the next quarter and fully recovered by the subsequent quarter," Leake said. "This is nowhere close to that."

So far this year, the performance of Dow component Boeing has disappointed, with shares down 2%, despite increases of 7% in the Dow and 9% in the S&P 500.

Nevertheless, Sterne Agee analyst Peter Arment has a buy rating and a price target of $87.

"We expect investor sentiment to improve," Arment wrote, in a recent report. "The stock should trade favorably as production is just commencing to ramp across the board, orders remain healthy and financial performance is poised to improve as the company trends toward significant cash generation and earnings power sequentially over the next several quarters."

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Arment estimated first-quarter earnings at 98 cents a share, ahead of consensus, based on his comfort level with the pace of first-quarter deliveries.

Leake acknowledged that "Boeing has been frustrating over the past few years," but said: "We remain optimistic because we understand that bringing new aircraft to market is an incredibly complex endeavor that does not always go as planned. This is a long-cycle business where decisions made decades ago can make or break you."

-- Written by Ted Reed in Charlotte, N.C.

>To contact the writer of this article, click here: Ted Reed

>To follow the writer on Twitter, go to http://twitter.com/tedreednc.

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