Two Reasons to Be Bullish on Boeing Co
BA Stock Has a Bright Future
Boeing Co (NYSE:BA) stock is an aerospace company that operates in an oligopoly environment. This means the company sees few competitors and owns a large market share in its sector. This environment has provided Boeing with many advantages, such as customers having limited choices when it comes to placing an order.
For investors, Boeing’s future is more important than its past. And even though the company reports earnings on a quarterly basis, this data may not paint a clear picture of where BA stock is headed. This is because Boeing’s customers require a large sum of capital to purchase its products, and the sales volume is not very high. I will explain this further, as well as provide two reasons to be bullish on BA stock.
Boeing is not a company that takes orders intending to meet a fast delivery time. For instance, take a large order that was placed in December 2016 by Iran Air.
The order is for approximately 80 airplanes, and is valued at $16.6 billion. However, the earliest airplanes are not expected to be delivered until 2018, and it could take a year or two to complete the entire order. Only when the airplanes are delivered is the revenue recognized. (Source: “Boeing, Iran Air Announce Agreement for 80 Airplanes,” Boeing Co, December 11, 2016.)
The deal with Iran Air is only one agreement of many that are currently in Boeing’s pipeline. In fact, the company currently has 5,700 airplane orders in place, valued at $473.0 billion. And there is no reason for the company to not take on more orders. (Source: “Boeing reports Fourth-Quarter Results and Provides 2017 Guidance,” Boeing Co, January 25, 2017.)
In 2014, a study was done by the International Air Transport Association (IATA), the trade association for the world’s airlines, regarding how future trends would look like in 20 years. According to the study, the number of passengers is forecast to double over this period. As such, Boeing need not worry about a drop in revenue due to decreasing demand. (Source: “New IATA Passenger Forecast Reveals Fast-Growing Markets of the Future,” International Air Transport Association, October 16, 2014.)
At this time, the U.S. remains the largest market for passengers traveling both domestically and internationally. However, it is believed that China will eventually take the top spot, thanks to having the the fastest-growing market. This is due to China’s greater population and rapid middle-class growth.
A switch to prioritizing China would require meeting demand for smaller airplanes for domestic flights and larger airplanes for international flights, which should benefit Boeing’s future earnings and pipeline backlog.
BA stock is currently trading at $167.07, with a dividend yield of 3.4%. Over the past five years, the dividend has seen an annual increase and, with a large pipeline of orders and future demand expected to increase, more hikes are possible.
Shareholders receive a quarterly dividend of $1.45 per share. The dividend represents approximately 55% of earnings, which is in line with past payouts.
The company has also been engaged in share repurchases. Fewer shares outstanding as a result of buybacks leaves shareholders owning a larger piece of the company, since each share is worth a greater percentage of the company.
Buybacks are also a way for a company’s management to indicate to the market that it believes the shares are undervalued. Share repurchases also show confidence in the company’s actions, given that shares of BA stock are trading at an all-time high.
Final Thoughts on BA Stock
Patient investors could receive many rewards from BA stock, given the share price increases, large pipeline, and future demand. And don’t forget that cash is returned through the dividend payments, which can continue to see further growth.