Boeing Co (NYSE:BA) stock continues to struggle in 2016, down 8% over half way through the year. The company, which celebrated its centennial recently, continues to win over shareholders with a huge backlog of orders and other exciting catalysts. With shares trading down in 2016 and up only 4% over the last two years, investors may be putting too much weight on competition and not understanding the true growth for Boeing stock.
Boeing has a backorder of planes that totals more than 5,700. This huge backlog is one of the biggest reasons to be long Boeing stock. Boeing said the current backlog would keep factories humming for the next six to seven years.
With the rapid rate of signing additional deals, shareholders are still looking at an aerospace bull market that should cause Boeing stock to start to take off again. Keep in mind that Boeing ended 2015 with a backlog worth $489 billion. Back in 2000, the backlog of orders stood at only $152 billion.
To add to the impressive backlog, Boeing’s optimistic forecasts for the next 20 years could add a boost to BA stock. Boeing sees total plane orders hitting more than 39,000 over the next 20 years. Boeing is optimistic about many regions, including India, where regulations have changed and added strong demand for large planes to fly to new international destinations.
Furthermore, BA has a huge market share of 85% for wide-body planes in India, which should help Boeing win additional deals. The company believes India intends to order 1,850 new aircraft valued at $265 billion over the next 20 years. Additional large deals from India to cover this anticipated demand could be a catalyst for Boeing stock.
Boeing is rumored to be working on a newly sized plane so that it can compete better with rival Airbus (OTCMKTS:EADSY). This could be an exciting catalyst that takes Boeing stock higher if it materializes.
What the Rumors Mean for Boeing Stock
At the Farnborough Air Show, Airbus beat Boeing in number of planes sold and dollars’ worth of contracts. Airbus signed deals for 279 aircraft valued at $35 billion. BA was awarded deals for 182 aircraft valued at $26.8 billion. The majority of Airbus planes signed was for the A320 family, specifically the A321neo. Boeing saw its aircraft deals split pretty even with the 737 Max 200 leading the way with 30 signed planes.
At the Paris Air Show, Boeing unveiled its twin aisle 777-300 extended range with China Airlines. The plane is going to be the flagship at China Airlines. Production increases on several specific planes are helping to meet the demand for deliveries and to improve operating margins for Boeing. The transition to the 777 will also lead to improvements on around 900 planes being delivered annually. In 2015, Boeing delivered 762 planes to customers.
New rumors call for Boeing to stretch the size of its 777 to target mid-range airlines and flights. This could be a huge deal for Boeing, as it would give the company entry into every size category in terms of passenger numbers. This is one area where Airbus has beaten Boeing pretty soundly in recent years.
Another item that could propel Boeing stock much higher is a final ruling on a deal to sell planes to Iran. Boeing is in the process of selling 109 aircraft to Iran. Congress is opposing the deal, citing security concerns from the Middle-Eastern nation.
IranAir plans to buy 80 aircraft from Boeing, while also leasing an additional 29 from the company. Deliveries for these planes would span from 2017 to 2025, providing another good catalyst for Boeing stock in the near-term and the next several years.
The deal with Iran is not a deal breaker for Boeing if it falls through. I believe the market is actually pricing the deal to fall through and never materialize, leaving a short-term catalyst right on the table for BA stock.
What BA’s Competitors Bring to the Table
The catalysts from Boeing are good considering all the strong competitors in the aerospace market. Boeing has held a pretty strong duopoly with Airbus for the last 20-plus years. Bombardier Inc (OTCMKTS:BDRBF) is attempting to challenge that with its new C-Series of planes, with 100 to 150 seat planes taking on the large commercial plane market. Bombardier has only 300 firm orders and trails both Boeing and Airbus by a wide margin.
The competition here is really Airbus vs. Boeing, but given the strong aerospace market and need for large orders, there is room for both players and even some additional competition.
Airbus has been beating Boeing the last several years in terms of deliveries and deals signed, which is a possible negative for Boeing stock. In 2015, Airbus signed deals for 421 aircraft valued at $57.0 billion. BA signed deals for 331 aircraft valued at $50.2 billion.
Bottom Line on BA Stock
During a recent investor presentation, Boeing reminded investors of its goals and key items for 2011 to 2015.
These goals included its robust backlog, product and service strategy, productivity framework and its cash focus. The new goals for 2016 to 2020 are: consistent revenue growth, accelerate innovation and shape the future, operating margin break-through and consistent cash generation growth.
Boeing stock continues to trade in the mid-range of its 52-week average, and shares trade around the $130 level. Analysts are calling for revenue to decline slightly to $93.9 billion for the current fiscal year, with earnings per share dropping from $7.72 to $5.33. However, for fiscal year 2017, analysts are calling for revenue of $95.6 billion and earnings per share of $9.55.
