Boeing hosts ‘buy-siders,’ ‘sell-siders’ in St. Louis

Investors and analysts gather to hear company tell its story

BY JOHN MORROCCO

Boeing held its Annual Investor Conference in St. Louis late last month, where more than 150 investors and analysts received the latest update on Boeing's financial performance and outlook.

During the two-day event, Chairman and CEO Phil Condit, Chief Financial Officer Mike Sears, and the leaders of the company's business units provided investors with an in-depth assessment of the company's financial health. Investors also were able to get a first-hand look at the activities at Military Aircraft and Missile Systems, including a tour of the F/A-18E/F Super Hornet production line. Last year, the conference was held in Seattle. Plans call for annual conference venues to be rotated around the company's various business units.

So who attended the conference and why are they important to Boeing?

The vast majority of the attendees represent some of the largest institutional funds in the U.S. and Europe. These include mutual funds, pension funds, insurance companies and other institutions such as university endowments and cultural foundations that have large amounts of capital to invest in the equity market. On Wall Street, they are referred to as "buy-siders." Buy-side analysts provide their research to the money managers who make large-scale investments on behalf of these institutions. Indeed, institutional investors are the largest owners of Boeing company stock.

Getting a company's message across to the buy-side community is crucial. Literally thousands of companies are vying for the investment funds they influence, and the competition is intense. Nearly 3,000 companies are listed on the N.Y. Stock Exchange alone. And these buy-siders are naturally a very inquisitive bunch.

Before they invest, they first want a clear understanding of a company's fundamentals - what the corporation's strategy is, what products and services it offers, what the projected market is for those products and services, what customers are saying about those products and services, and what the competitive environment looks like. Buy-siders also gauge whether a company has the manufacturing skills, facilities, suppliers and cash to do what its says it wants to do, as well as assessing the track record and credibility of its management team and financial performance.

Most follow certain investment styles, just like many of the mutual funds retail investors own. These range from aggressive growth stocks with explosive earnings potential to so-called value plays - under-priced stocks that offer unrecognized potential. But whatever their investment style, institutional investors are essentially looking for earnings growth with minimal risk and an element of predictability.

Once they decide they want to invest in a company they then have to determine at what price. To do this they conduct a valuation analysis, employing the qualitative and quantitative information they have gathered. A large part of that equation involves what rate of return a buy-sider expects or requires for investing in a particular stock, because at the end of the day it's all about creating value.

Another group of analysts who attended the conference also play a key role in this process. These are the so-called "sell-side" analysts who provide research about publicly traded companies. They work for brokerage firms that make commissions on selling equities and executing equity trades. They "sell" their research to potential investors, hence the name. They also offer their advice to buy-siders, as a supplement to in-house institutional research, and publish periodic reports on the companies they cover. You'll often see sell-side analysts quoted in the media or appearing on the financial networks, offering their unique perspectives.

Sell-side analysts usually cover a specific industry sector, such as aerospace and defense, and track the performance of individual companies, as well as the sector as a whole. They do this by conducting a bottom-up analysis of a company - meeting with management, customers, suppliers and competitors in the process.

Pick up a copy of the The Wall Street Journal or tune in to a business news show and you'll run across references to companies meeting, beating or missing "consensus" when they issue their earnings statements at the end of a financial quarter. Consensus is simply the median of all the relevant analysts' EPS estimates for a company. A company that "beats" consensus often sees a corresponding rise in its share price. The reverse often is the case for companies that come in below consensus.

Boeing's senior managers and Investor Relations team meet regularly with investors and analysts, in addition to issuing detailed quarterly financial reports. The company also holds conference calls with analysts after the end of each quarter to discuss the financial results.

But Boeing's yearly annual investor conference provides a unique opportunity for investors and analysts to engage in an in-depth dialogue with the company's senior management. And at the same time, it provides them with a chance to "kick the tires" at one of the company's business units to see how Boeing is creating value for shareholders.