Since the November election, Boeing Co (NYSE:BA) is up 26%. The earnings don’t justify the bullishness in BA stock. The December quarter numbers, released Jan. 25, showed less revenue than in the previous quarter, and lower earnings, mainly because military orders were down.
Financial analysts may claim that a 30% hike in Boeing’s dividend and an increase in the company’s stock buyback program, announced in December, justify a much higher price for Boeing stock. Bulls will also point to a rosy outlook from CEO Dennis Muilenburg, who expects earnings of approximately $9.30 per share this year, a forward price-to-earnings multiple of 19, close to that of the market.
But, the timing of the march in BA stock — it is up 10% since those earnings came out — point to a different cause for its rise: Donald Trump.
Trump’s Favorite Manufacturer
Muilenburg and Trump have developed something of a bromance since January. Muilenburg has echoed the Trump line on tax reform, and Trump has put his thumb on the scale for Boeing’s F/A 18 Hornet fighter jet.
Trump also attended the roll-out of Boeing’s latest commercial jet, which the company considered a very big deal. It seems “Trumponomics” will make or break Boeing.
Boeing is also in line with Trump foreign policy.
As Trump turns to India, a counterweight to Chinese power in Asia, Boeing is dramatically increasing its activity there, creating a new defense business unit, hinting at an acquisition spree, integrating with that country’s supply chain.
Trump likes England post-Brexit, so Boeing likes England post-Brexit. Trump likes South Carolina, Boeing loves South Carolina.
Presidents serve four-year terms, and getting in line with each new President’s priorities makes sense for any military contractor. BA Stock just represents an extreme case.
Do the Numbers Add Up?
There are financial arguments to be made both ways on Boeing, which is why InvestorPlace’s Sam Collins recently called BA stock his “trade of the day” while Vince Martin wrote, just one week earlier, that the Boeing stock rally was out of gas.
Boeing’s asset base has fallen in recent years, from nearly $95 billion to less than $90 billion, while the long-term debt load on those assets has increased by nearly $1 billion. Boeing’s revenue peaked in 2015, falling last year by approximately $500 million, with earnings per share rising only because buybacks cut the float from 695 million shares to 642.8 million.
But, you don’t buy or sell stocks based on yesterday — you buy or sell them based on tomorrow. You can argue that tomorrow looks very good for Boeing stock, with increased nationalism leading to more military orders, the increased efficiency of new jets leading to more domestic orders, and the increased support of the Trump Administration leading to more profit.
Boeing also faces a growing, albeit competitive market in outer space, where it hopes to automate the production of satellites and compete with start-ups like SpaceX, with shorter production cycles.
Should You Buy BA Stock?
Analysts are divided on Boeing stock, with 10 calling it a buy and 9 calling it a hold, while 3 now call it a sell. My own view is that, while the upside on BA stock may be limited — even our own Sam Collins is just looking for a 10% bump to $200 from here — income investors should be very interested, as the new dividend of $1.42 per share is a 3.21% yield at current prices.
What you think of Boeing, in other words, depends less on what you think of Trump than what you want for yourself. If you are looking for big growth, look elsewhere, but if you need retirement income, Boeing stock looks like a good bet (at least for the next four years).
Dana Blankenhorn is a financial and technology journalist. He is the author of the sci-fi novella Into the Cloud, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.
