Boeing (BA) shareholders got some good news on Wednesday morning as BA rocked its second-quarter financials, driven by strong commercial airplane deliveries and growing margins. But despite Boeing’s earnings beat and higher full-year guidance, the aerospace giant still must fly through pockets of turbulence en route to its next summit.
Let’s start with the facts: Boeing’s earnings per share (EPS) were $2.42 in the fiscal second quarter — up a whopping 52% from the same quarter last year and beating Wall Street’s expectations by 41 cents per share. BA reported $22.05 billion in revenue — 1% higher than the year-ago quarter but missing analysts’ expectations of $22.33 billion.
Not surprisingly, Boeing earnings got a lot of lift from ramped-up commercial aircraft deliveries, particularly the 787 Dreamliner. Perhaps even better news: Boeing raised its full FY15 guidance to $7.90-$8.10 per share — up substantilly from earlier forecasts of $7.15-$7.35 per share.
Boeing stock defied gravity in 2013 as investors shrugged off the 787 Dreamliner’s teething troubles and production delays, but the stock is down about 7% year-to-date and declined nearly 3% on Wednesday morning. Does that mean now is the time to buy BA stock? Here are three tailwinds and three headwinds for the company:
Tailwind: Strong Aircraft Production, New Orders
Boeing earnings were helped out a lot by strong commercial aircraft deliveries and production — particularly the company’s flagship 787 Dreamliner. BA has increased production rates on the once troubled aircraft, and even delivered its first stretch 787-9 during the quarter. The FAA certified the Dreamliner for Extended-range Twin-engine Operations (ETOPs) over water, allowing the Dreamliner to fly routes 330 minutes away from an emergency airport — a must-have for airlines in Asia and Australia. BA also penned 264 net orders during the quarter.
Tailwind: Commercial Airplane Demand is Skyrocketing
Over the next two decades, Boeing forecasts global demand for 36,770 new commercial aircraft — that’s 4.2% higher than the company estimated at this time last year. If Boeing’s current market outlook is correct, the value of new airplanes sold over that period will reach a whopping $5.2 trillion. Much of the focus in recent years has been BA’s battle with European rival Airbus (EADSY) in wide-body and mini-jumbo jets like Boeing’s 787 Dreamliner and upcoming 777X. But the lion’s share of new aircraft sales will be in fuel-efficient, 160-seat jets like Boeing’s Next Generation 737-800 and 737 Max which are head-to-head competitors with Airbus’ A320neo. These single-aisle jets are well suited for low-cost carriers — one big reason BA believes 25,680 new jets will be needed in this market by 2034.
Tailwind: International Deals Boost Defense Sales
The Pentagon may be in belt-tightening mode but that doesn’t mean gloom and doom for BA’s defense business. In the past, international sales accounted for only about 15% of BA’s defense unit’s backlog; these days, that figure is 30% to 35%. In recent weeks, BA has announced a wide range of deals, including a partnership with Head Italia for sophisticated cybersecurity solutions to Italian government and defense customers. U.S. military sales will continue to contribute to Boing’s bottom line — particularly given last month’s successful test of its Ground-Based Midcourse Defense (GMD) ballistic missile defense system.
That’s the good news. But on the other hand…