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Aerospace and defense giant Boeing (BAFree Boeing Stock Report) has released better-than-expected June-period results. For the quarter, share earnings came in at $1.27, ahead of our estimate of $1.05, and $0.02 higher than the year-earlier tally. The top line exceeded $20 billion, a 21% increase, year over year. Healthy levels of aircraft orders and deliveries, along with higher revenues at the Defense, Space & Security division, fueled the earnings increase. Boeing shares traded modestly higher on the news.

Despite global economic concerns, the Commercial Aircraft division continued to perform well. During the June interim, it delivered 150 airplanes, compared with 118 a year earlier. Revenues at this division advanced 34%, while the operating margin narrowed slightly, to 10.2%. Boeing delivered the first 747-8 intercontinental passenger airplane during the quarter, and booked 28 net orders. Demand for its aircraft remains strong, and Boeing's commercial backlog continues to exceed 4,000 planes and $300 billion.

The Defense, Space & Security division also experienced a solid revenue increase. The top line advanced 13% year over year, to $4.1 billion. During the quarter, however, due mainly to inventory adjustments, the operating margin narrowed by 130 basis points. Despite concerns about U.S. military spending (discussed below), Boeing received a good deal of new orders during the quarter, and this division's backlog is currently $72 billion.

Looking ahead, we continue to like Boeing's near- and long-term prospects. Although the U.S. economy is uneven and material financial problems exist in the euro zone, we expect that passenger air travel for business and leisure will continue to increase at a decent rate over the next few years. As a result, we believe that a number of domestic airlines will possess the financial flexibility and eagerness to replace their aging fleets with new, more fuel-efficient and technologically-advanced aircraft. In anticipation, Boeing continues to increase its production schedules for some of its most popular models, including the 737, 777, and 787. We also expect hefty orders from a number of foreign air carriers; its huge backlog should support full production for many years.

Due to the June outperformance and an improved outlook, we are increasing our 2012 estimates. We now expect Boeing to deliver a greater number of aircraft this year, prompting us to add one billion dollars to our top-line estimate, which now stands at $81 billion. We have also raised our share-net call by $0.15, to $4.65, which is a nickel higher than the top end of management's guidance range ($4.40-$4.60). We are currently leaving our 2013 estimate unchanged at $5.60 a share, which would represent a 20% year-over-year increase. Looking further out, we continue to project that Boeing's bottom line will reach $7.00-$7.50 by the 2015-2017 timeframe.

As for the stock, we continue to like Boeing as a core, long-term holding. At this time, the equity offers worthwhile risk-adjusted total return potential. The dividend is well covered, and the payout was increased to $0.44 a share per quarter earlier this year.

That said, some risks are present. A good percentage of the company's revenues and earnings are derived from sales to the U.S. military. Due mainly to budgetary concerns, the Defense Budget is currently scheduled to decline by one trillion dollars over the next 10 years or so. Although it is too early to tell which programs will be reduced or eliminated, we expect that Boeing will lose some business over that period. On the bright side, the aerospace and defense behemoth has expanded its military sales internationally, and foreign customers now account for about 50% of Boeing's top line, a trend that will likely persist for the foreseeable future. Thus, we think the company is in a good position to offset most of the probable domestic weakness. That said, going forward, we suggest that current and prospective investors monitor government spending with regard to the Defense Budget.

About The Company:The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF). In 2011, foreign sales accounted for 50% of overall revenues, and R&D amounted to 5.7% of sales.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.