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US defense outlook favorable - Boeing is on a roll
By James. H. Smith
December 15, 2005
In a report dated December 12, Fitch Ratings said it expects stable to
improving credit quality in the North American aerospace and defense
industry in 2006, with slowing defense sector growth offset by strong
commercial aerospace performance.
The credit rating agency notes what most analysts maintain: the main risks
for the financial performance of defense-related companies are US defense
budget cuts and uncertainty in other spending plans.
Nowhere is Fitch's prognostication more apparent than in the current
performance of US aerospace and defense company Boeing.
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Boeing is on a roll, with its shares topping the US$70 mark for the first
time in five years.
Boeing's high ride has been propelled by success both in the commercial
aerospace and defense sectors.
On the commercial aircraft side, which is not the focus of this column but
which has been a pillar of the company's success, the US plane maker is
outpacing rival Airbus, mostly on the back of the company's new B-787, which
has proved to be the right product at the right time.
To date, Boeing has logged 950 orders and commitments for commercial
aircraft this year, against the 904 posted by its European rival.
But the most telling statistic is that Boeing has orders for 309 B-787s
against the 155 reported by Airbus for its competing A350 aircraft.
Boeing will deliver its B-787 far in advance of the A350. Timing is
everything.
Boeing's stock has almost tripled since 2003, the year the company was
overtaken by its European arch rival, using aircraft deliveries as the
barometer.
The "bad" news for the week is that Allied Defense Group (ADG) has received
a warning letter from the American Stock Exchange (AMEX) stating that the
company did not comply with regulations regarding listing of additional
shares.
Specifically, on November 16, the company issued 118,072 shares of its
common stock in connection with its acquisition of Global Microwave Systems
without first obtaining AMEX approval.
Apparently this has not scared off investors. At the time of this writing,
ADG was trading at US$22.00, halfway between its 52-week range of US$19.80
and US$25.80.
On the positive front for small cap investors, View Systems (VYST.OB) has
developed a system, called SecureScan, funded by the US Department of
Justice and developed by the Department of Energy's Federal Lab System.
SecureScan is a weapons detection system that ignores common items, such as
coins, watches and jewelry but is sensitive enough to locate and pinpoint
hidden razor blades on the video image.
The company was trading at 18 cents per share at the time of this writing,
within the 52-week range of five to 47 cents per share.
View Systems states that is the only software based walk-through detector on
the market.
The system is unique, says View Systems, because of its very high throughput
rate, integrated video logging ability, and access control interfaces. The
SecureScan archives each scan and creates summary logs.
Analysts are predicting that top US defense contractors have up to USD45
billion that may be used to buy up smaller rivals.
This is not to say that the company is up for grabs.
Charles Nelson, an executive with the company, told investorideas.com: "I
would tend to say that the US government is mostly interested in larger
companies."
"Our business has taken shape this year with interest from courthouses and
schools. Our system is fast and can process up to 1300 people per hour as
opposed to systems that currently process 200-300 people per hour. It is the
only computer-based system on the market. We can change settings in a matter
of seconds."
Nelson says that the system may have further-reaching potential for military
and homeland security application.
Disclaimer
James Smith is an independent columnist for this web site. James Smith may
hold long or short positions in any of the stocks mentioned in this article
and those positions can change at any moment.
InvestorIdeas.com Disclaimer:
www.InvestorIdeas.com/About/Disclaimer.asp, InvestorIdeas is not
affiliated or compensated by the companies mentioned in this article. James
Smith is a freelance writer. Nothing in the articles should be construed as
an offer or solicitation or recommendation to buy or sell any specific
products or securities. Past performance does not guarantee future results.
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