Neal Dihora: Today, we are talking about commercial aerospace--specifically aircraft with more than 100 seats, a market dominated by Boeing (BA) and Airbus (AIR).
The promise of fuel-efficient aircraft combined with low interest rates have helped these two firms combine 11,500 orders of undelivered aircraft, that totals more than five years of production. Given this and the confidence of Boeing and Airbus management teams, they will be increasing production rates over the next five years.
Along with the existing production, we expect deliveries to grow, helping sales and profits improve. Still, the recent decline in oil prices and the slowing GDP around the world could impact negatively these deliveries.
Our favorite name in this space remains Airbus Group, which we rate as 4 stars currently. We think market prices in the mid-40s represent pretty low expectations for profit improvements in the next five years.