Boeing Co: Why BA Stock Is Taking Off Today
January 25, 2017
Boeing Co (NYSE:BA) stock has been on a white-hot run in recent months, despite dealing with plenty of operating headaches, as well as an overall slowdown in commercial jets. That type of disconnect between a business’ operating performance and price performance usually has a way of triggering my investor anxiety, but luckily for investors, Boeing’s financials seem to be catching up with the stock.
Well, that’s what the company’s fourth-quarter (Q4) numbers indicate, anyway. Let’s take a closer look.
Boeing Getting Off the Ground
For the quarter, Boeing posted earnings of $2.47–smashing the average analyst estimate of $2.32–on revenue of $23.3 billion.
To be sure, business continued to decline year-over-year in most of the company’s business segments: Military Aircraft revenue fell 18%, Network & Space Systems sales sank eight percent, and Global Services/Support business also declined eight percent. (Source: “Boeing Reports Fourth-Quarter Results and Provides 2017 Guidance,” Boeing Co, January 25, 2017.)
However, Boeing’s largest and most important segment, Commercial Airplanes, saw an uptick in revenue of one percent year-over-year. That’s a particularly encouraging sign for BA stock, given the strong headwinds which plagued the business in 2016. In fact, management says that it fully expects a rebound in defense spending and for a new family of “737” narrow-body jets to offset weakness in other lines.
For the full year, Boeing now sees core earnings per share of $9.10 to $9.30, revenue of $90.5 billion to $92.5 billion, and commercial deliveries of between 760 and 765 planes.
“We think this release is pretty boring — and boring is good,” said Vertical Research analyst Robert Stallard. “That’s a relief compared with a Boeing report a year ago, when the company caught investors off-guard with a forecast of fewer 737 deliveries.” (Source: “Boeing Gets Boost as 787 Turns from Drag to Rainmaker,” Bloomberg, January 25, 2017.)
The Bottom Line on BA Stock
Going forward, I expect Boeing will continue to improve “787 Dreamliner” productivity and make good on its forecast of higher deliveries in 2017. Additionally, I trust that management will keep its promise of returning 100% of cash flow to shareholders in the form of value-enhancing buybacks and scrumptious dividends–all things that bode well for BA stock. The backlog, after all, stands at nearly $500.0 billion, while operating cash flow for the quarter came in at a robust $2.8 billion.
“With solid fourth quarter operating performance and a sharp strategic focus, we extended our aerospace market leadership in our centennial year and positioned Boeing for continued growth and success in our second century,” said Chairman, President, and Chief Executive Officer Dennis Muilenburg. (Source: Boeing Co, January 25, 2017, op cit.)
I’m always worried about buying into stocks flying at a 52-week-high altitude, but given the stock’s still-solid three-percent-plus dividend yield, reasonable price-to-cash flow of 10, and improving fundamentals, I wouldn’t blame investors for trying to jump on-board. And when you add in the likely tailwind of a Trump-fueled increase in defense spending, the decision to buy BA stock becomes even easier.
