4 Short Synopsis: Boeing (BA), Qualcomm (QCOM), Sprint Nextel (S) & Alcatel-Lucent (ALU)

By Yaser Anwar, CSC of Equity Investment Ideas

Boeing (BA)

• Solid growth in revenue and net income. Boeing’s revenues climbed 26.2% to $17.54 billion in Q4 06 from last year. Net income expanded 110+% YoY to $989 million. Strong business trends helped the company to post better results during the quarter. Increased production boosted revenues and weakness of EADS helped too.
• BA now forecasts 27K+ new planes in the global airline market by 2025, as compared to its previous forecast of 25,700 new planes. The Street projects a 6% sales increase in 07. S&P is looking for modestly slower growth (about 9%) in commercial airplane sales, on tougher comparisons, and sustained moderate growth (near 4%) in integrated defense system sales.
• In January, BA reiterated its May 2008 first-delivery schedule for the 787 Dreamliner, and we see BA continuing to win share from Airbus.
• The Commercial Airplanes (CA) segment rose 37.4% to $7.61 billion boosting revenue, as airplane deliveries increased as the production rate increased. This resulted in the delivery of 103 airplanes during the quarter, compared to 73 a year-ago.
• The Integrated Defense Systems (IDS) segment grew 17.7% to $9.69 billion in Q4 06. The street estimates 2007 EPS of $4.65 and FcF of over $5 per share. Boeing has been using its significant FcF to reduce debt, repurchase shares and raise dividends.

Qualcomm (QCOM)

• QCOM’s operating cash flow has increased to $789 million, 32.38%, from Q last year. QCOM also exceeded the industry average cash flow growth rate of 6%. The gross profit margin for QCOM is currently high, coming in at 73%.
• Regardless of QCOM’s high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, QCOM’s net profit margin of 32.1% significantly outperformed against the industry.
• The expansion of VoIP offerings due to increased demand, the fact that increased VoIP lowers churn rates for Cable Providers, and because VoIP providers are not tied to the same regulatory restrictions as telcos will provide opportunities for the industry. The online video revolution will lead to more consumers shift to DSL, cable, and fiber as end users become accustomed to receiving quicker transfers of data from providers like iTunes and YouTube.
• The Street is expecting gross margins of 69% in both 07 and 08, and expect net margins to remain flat in the low 30% area in both years. The Street estimates EPS of $1.65 for 07 and $1.95 for 08, including $0.20 of projected stock option expense in both years.

Sprint Nextel (S)

• S’s gross profit margin for the 4th Q of 06 is pretty much unchanged when compared to the same period a year ago. S grew both sales and net income at a faster pace than the average competitor in its industry this Q vs. a year ago. S suffers from weak inventory liquidity, evident by the quick ratio of 0.68 which shows a lack of ability to cover short-term cash needs. S’s liquidity has decreased from the same period last year, indicating deteriorating cash flow.

Alcatel-Lucent (ALU)

• ALU has experienced a steep decline in EPS in the most recent quarter vs. the same quarter a year ago. ALU has reported a trend of declining EPS over the past year. The Street estimates suggest that this trend should reverse in the coming year.
• In 07, The Street expects an improvement in earnings. $0.77 vs. $0.48. Competition in the industry remains strong from ALU’s traditional fixed-line and mobile competitors as well as from newer competitors from China.
• To maintain or increase market share and to acquire new clients, ALU will need to enter into contracts on terms that are less advantageous, and, as a result, its gross margins could be adversely affected. Buyers’ power remains high with the rapid consolidation of service providers around the world.

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