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Strategies & Market Trends : Graham and Doddsville -- Value Investing In The New Era -- Ignore unavailable to you. Want to Upgrade?

To: porcupine --''''> who wrote (394)	6/17/1998 5:44:00 PM
From: porcupine --''''>	Respond to of 1722

New York Times re Boeing: On the one hand...but on the other... [Betcha market dominance will be decisive -- RR] May 31, 1998 Boeing Is Still Plodding Despite Being No. 1 Related Articles When Overtime Doesn't Feel So Fine Time Is of the Essence The New York Times: Your Money By LAURENCE ZUCKERMAN t has one of the great global brand names, faces only one competitor, and demand for its product is setting records. So why is Boeing stock still taxiing? Market domination may go in and out of favor in Washington and on Main Street, but it is always popular on Wall Street. The most attractive pitch any stock promoter can give a prospective investor is that a company dominates its business. Microsoft and Intel notwithstanding, market-dominant companies don't always reward their investors, as Boeing stockholders have learned. Last year, when Boeing announced that it was buying McDonnell Douglas, its last domestic competitor in commercial aircraft, investors poured into Boeing stock. The merger left Boeing the dominant supplier of commercial planes with only Europe's Airbus Industrie consortium left to divide the spoils. But almost from the day the merger was completed in August, Boeing has been beset by a series of setbacks that have forced it to take billions of dollars in charges against earnings. Last week brought yet more bad news: after months of playing down the impact of Asia's financial crisis on its business, Boeing revealed that weakening orders from Asian airlines would force it to cut production of the 747 jumbo jet, which by some accounts brings Boeing's airplane division half its operating profits. "The airlines are making record profits," said Wolfgang Demisch, an aerospace analyst with BT Alex. Brown in New York. "The parts suppliers are making record profits. What is wrong with this picture?" Boeing stock, which reached a high of $60.50 last July, closed on Friday at $47.75, not far above its recent low of $43, in October. The views of Wall Street analysts on Boeing are now polarized. After the company revealed the 747 cutbacks last week, two analysts downgraded their recommendations of the stock to a hold, while another raised his to a strong buy. In addition, Pierre Chao of Morgan Stanley reiterated his strong buy recommendation and set a price target of $100 a share over the next year. Part of the attraction for the bullish faction is the belief that the stock cannot fall much lower than $45 a share before it becomes too attractive for many investors to pass up. "I've been saying since January of '97 that we expected the stock to trade in the $45-to-$55 range," said Steven Lewins, an analyst at Gruntal, who raised Boeing to a strong buy on Thursday. "It got down to $45.25, so I pulled the trigger." But a number of investors and analysts have cooled on the stock because they have lost faith in Boeing's management. Since the company's first production problems came to light in October, Boeing managers have dribbled out a stream of bad news practically monthly. Many on Wall Street are bracing for the company to announce yet another charge against earnings reflecting continued problems producing the new version of the 737. "What investor is going to stake his reputation on this management?" asked one analyst who regularly talks to executives at the company, and insisted on anonymity. Boeing executives have talked since the early 1990s about their determination to transform the way its airplanes are made, drastically cutting costs. But when demand for airplanes picked up in 1996, the company racked up a record number of new orders by offering its customers steep discounts. That helped win the market-share race against Airbus, but it forced the company to more than double production from 18 planes a month to 43 and hire 32,000 new employees, before it had finished transforming its production process. By last September, Boeing's assembly lines were hamstrung by parts shortages and delays caused by inexperienced workers. The company was forced to halt production for a month on the 737 and 747 lines, and it announced a total of $2.6 billion in pretax charges. The company has since been plagued with more production problems and has put off full implementation of its cost-cutting plan until later this year. "It's always been the same pattern," said Jack Modzelewski, an analyst with Paine Webber in New York. "Lucy pulls the ball from Charlie Brown every year. They promise to do better next time, but they never do." Boeing executives now say that some 737 deliveries will be delayed through the end of the year but they offer little guidance about the company's future profits. Modzelewski said the company would have a hard time increasing its earnings while it was saddled with a backlog of orders. According to his estimate, the back orders bear an average discount of 27 percent on each airplane. He predicted that the demand for new airplanes would decline 10 percent over the next year, leaving little scope for Boeing to make up the foregone profits. "If you can accelerate earnings per share in that environment," he said, "that is like walking on water." Still, the siren song of the market dominator is hard for some to resist. Chao is convinced that Boeing has a bright future. "You are talking about a company," he said, "that has only one main competitor in the world in a booming market."