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Despite Dreamliner woes, market rewarding Boeing investors

Lithium-ion battery fires on 787s in Japan (above) and Boston spooked some investors.

JIJI PRESS/AFP/Getty Images/File 2013

Lithium-ion battery fires on 787s in Japan (above) and Boston spooked some investors.

Investors who stood by Boeing during its 787 crisis have been rewarded.

Things looked bad three months ago. Boeing’s flagship plane was grounded worldwide because no one could explain the smoldering batteries on two planes. Deliveries of the 787 to customers had stopped. No one knew how much the whole mess would cost. Plus, there was a chance engineers could strike, halting production.

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Some investors bailed out, spooked by the latest snag with a plane considered to be a key to Boeing Co.’s future. Others were confident Boeing would quickly fix the battery problem and raved about its long-term prospects.

‘‘Over time, when investors are terrified, you’re usually going to be able to find some very good buying opportunities,’’ said Don Peters, a portfolio manager at T. Rowe Price.

On Friday, federal regulators approved Boeing’s battery fix, clearing the way for the plane to fly again. Boeing engineers and technicians began fanning out across the globe Monday to modify Dreamliner battery systems and get the fleet back in the air. Boeing said it would deploy about 300 technicians to nine countries in coming months. It was not immediately clear when the first 787s would return to the skies.

The shares rose 2 percent to close at $87.96 on Friday, leaving them up almost 17 percent for the year. The stock retreated a bit Monday, falling 1.2 percent to $86.94.

The stock has outpaced the gains that brought record highs for the Dow Jones industrial average and the Standard & Poor’s 500 index. Anyone who bought 100 Boeing shares at the January low of $73.65 is sitting on a gain of $1,431, or 19 percent.

In January, T. Rowe Price analyst David Rowlett concluded that Boeing’s 787 problem was serious, but manageable.

He said the hardest part for Boeing with the 787 had been the years of production delays before the plane went into service in late 2011. At the time of the grounding, only 50 787s had been delivered, limiting any compensation owed to customers for the planes being out of service.

‘‘It’s been a tough few years for this platform and for Boeing, but I feel like we’re close to the finish line on the 787,’’ Rowlett said.

A bigger concern, he said, was that engineers would reject a contract offer and walk out. That could have stopped production of all Boeing planes. Instead, they approved a deal on Feb. 19.

Long-term, Boeing has plenty going for it.

There’s growing demand from the world’s airlines for more planes to expand their operations or replace older planes with fuel-efficient modern aircraft. The Chicago-based company has a steady stream of revenue locked in, with a backlog of orders for almost 4,500 planes.

That includes 840 Dreamliners, as the 787 is known. It is Boeing’s first all-new airplane since the 777 in 1995. Outside, it has an advanced carbon-fiber skin (instead of the usual aluminum). Inside, it uses far more electricity than other airliners. That adds up to a plane that can save the airlines money on fuel, which is currently their biggest single cost.

As popular as it is, the 787 is not Boeing’s best-seller. The bulk of orders are for the 737, the world’s most widely used aircraft. The longer-range 777 is also selling well. Boeing is boosting production of both to catch up with the orders.

It also helps that Boeing faces only one serious competitor: Airbus. Even with the 787’s woes, the plane is ahead of Airbus’s competing A350, which has not flown yet and won’t be delivered until next year, at the earliest.

Boeing still faces some issues.

The final price tag for the 787 battery problem is not known. The battery issue has strained relations with customers already frustrated by the 787’s three-year delay in initial deliveries. And weak demand for its superjumbo 747-8 forced Boeing to slow production of that plane.

Still, some analysts think Boeing’s shares could top $100 — and even top the high of $107.83 set in 2007. They have concluded that Boeing shares are undervalued, compared to the company’s ability to generate cash.

Analysts expect the cash produced by Boeing’s operations to rise from $7 billion this year to $8.5 billion in 2015, according to FactSet. The biggest generator of that cash will be increasing deliveries for commercial planes.

Investors will share in the bounty. Boeing plans to buy back $1.5 billion to $2 billion of shares in 2013.

Sterne Agee analysts Peter Arment and Josh W. Sullivan noted Boeing bought back and retired $9.1 billion in stock, or 15 percent of outstanding shares, from 1998 to 2001, another period of strong deliveries. The two analysts estimate that Boeing could retire 10 percent of its shares over the next two years. The appeal of buybacks is that they boost earnings per share.

Boeing is also boosting its quarterly dividend 10 percent, to 48.5 cents per share. That means investors will get a return of 2.3 percent based on the current stock price — about the same as other big manufacturers such as Caterpillar Inc. and Deere & Co.

Dividend-paying stocks are in favor because they deliver reliable quarterly payments, while interest-bearing savings accounts are paying almost nothing.

Boeing’s price-to-earnings ratio (value of shares compared to profit) was 16.8 last week, up from 13.8 a year ago. The five-year average is 18.3, suggesting investors aren’t putting as much value on Boeing profits as they did in recent years. But the P/E ratio­ is higher than Caterpillar’s 9.9 and Deere’s 10.8.

In July 2007, Boeing shares were at a record high of $107.83, according to FactSet. The stock was subsequently hurt by the 787 delays and trouble locking up a huge contract to build a new tanker for the Air Force. Then it plunged along with other big stocks during the market sell-off, hitting a low of $29.05 on March 3, 2009.

Richard S. Nackenson, at Neuberger Berman Multi-Cap Opportunities Fund, added to his Boeing holdings after the battery problems. Boeing was already the top holding in his fund. He said the 787 risk was reflected in Boeing’s stock price in January.

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