Just Buy Boeing Co (BA) Stock Ahead of Earnings

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Aerospace firm Boeing Co (NYSE:BA) has had a bumper year so far. The firm’s share price is up nearly 40% from a year ago and investor sentiment surrounding the stock has been positive. BA stock has been able to ride the Trump rally wave since the November elections and despite worries about a slump in new plane orders, the firm has said investors will see per-share earnings rise by 36% in 2017.

Just Buy Boeing Co (BA) Stock Ahead of Earnings

Now, with Boeing set to report earnings on Wednesday, investors are wondering whether the figures will show that BA is on track to keep those promises.

Boeing is certainly up against a fair few headwinds, but I believe that the firm’s diversified portfolio and cost-cutting efforts will be enough to offset disappointment in its commercial airline business.

Dealing With the Problem

There has been a lot of concern surrounding BA stock based on a slowdown in new commercial airline orders. Just last week, Middle Eastern airline Emirates announced a 20% cut in its U.S. flying. This is not the first time that Middle Eastern carriers have shown signs of slowing down, and their reduced capacity will translate into fewer orders for Boeing.

While the Boeing’s backlog of orders was expected to make up for a sales slump now, BA’s profit margins have taken a hit, falling to just 4.8% last year from highs of 10.9% in 2013.

That’s certainly something investors should take on board, but Boeing isn’t planning to just wait it out. Management announced that it would be cutting hundreds of engineers’ jobs this summer. That news followed the firm’s decision to lay off  some 1,800 mechanics and engineers earlier this year.

Sure, the layoffs suggest that Boeing is suffering more than expected from weakness in its commercial airlines business, but they also show that management is committed to making good on its promises to shareholders in 2017. Cost cuts are a necessary evil for Boeing and the firm is doing what it can to mitigate damage and improve profits.

These measures are likely to give management the confidence to stand behind its earlier fiscal 2017 guidance, which will help BA stock continue on its upward trajectory following its earnings release.

Defense Boon

It’s also important to remember that Boeing is more than just a commercial airline supplier. A huge part of BA’s business is linked closely to U.S. defense spending, and with Trump in office, that arm of Boeing will probably see increased sales.

The outlook for Boeing’s military aircraft division looks very promising. Not only has the firm shifted its focus to servicing and upgrading existing jets to combat a slump in new plane sales, but the Trump administration is proving to be somewhat of a buoy to BA stock. The Pentagon recently placed an order for 12 new fighter jets and Boeing won a $2.2 billion deal to sell surveillance aircraft to the Navy at the end of March.

The navy deal alone is expected to add around $700 million to Boeing’s revenue every year for three years.

Boeing’s success in the defense space is likely a big reason the firm felt confident promising investors they’d see EPS rise in the upcoming year, and based on the demand so far, I’d say management was right.

There is a chance that the lack of demand in the commercial sector will cast a shadow over Boeing’s upcoming earnings announcement, but BA has proven itself to be committed to ensuring those weaknesses don’t offset its forward progress in the defense space.

The firm gave investors an optimistic forecast for fiscal 2017, and that optimism is likely to be echoed in this week’s earnings results.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2017/04/just-buy-boeing-co-ba-stock-ahead-of-earnings/.

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