With some 44% returns in the past year, Chicago-based Boeing Co (NYSE:BA) continues to be a remarkable turnaround story. But with Dow component up some 20% year-to-date, there is now fear that BA stock has peaked.
But it would be a mistake to part with this winner, especially given that defense spending was one of only three areas in President Trump’s budget proposal to see an increase.
And plus, not only is Boeing coming off a solid first-quarter earnings beat, the world’s biggest plane-maker is posting higher cash flow, which should support Boeing’s buyback program and its increases in the dividend, which already yields a robust 3.05%. With these factors in mind, BA stock should reach $200 in the next 12 to 18 months.
Reasons to Love BA Stock
Boeing’s attractive combination of income and value should keep BA stock flying high for much of 2017. The company just raised its full-year earnings-per-share forecast to a range of $10.35 to $10.55 from a prior range of $10.25 to $10.45 per share. The company also raised its adjusted full-year outlook to $9.20 to $9.40 from a prior range of $9.10 to $9.30. Revenue is expected to range from $90.5 billion to $92.5 billion.
The company has already announced 198 net orders for first quarter, compared to just 121 last year. And the fact that Boeing believes it can achieve its delivery goals on a lower engineering headcount means more profits will trickle down to the bottom line. Why is the order inflow metric important? Boeing has begun to trim its headcount to offset declining revenue, which in the first-quarter declined 7.2% year-over-year to $20.98 billion, missing consensus estimates of $21.34 billion.
In other words, the company needs to sell more plans to meet its profitability goals. And that’s what BA stock investors have come to understand. The fact that president Donald Trump’s administration continues to tout increased defense spending should bode well for aerospace and defense. The White House’s just-released $4.1 trillion budget proposal calls for an additional $25 billion in defense spending for next fiscal year, following a similar bump in the current budget.
And to say nothing about the existing number of contracts Boeing already has with the Pentagon. Most recently, the company secured a $983 million deal from the U.S. Air Force to provide engineering support services. Boeing also won a modification foreign military sales contract valued at $488.1 million from the U.S. Army to re-manufacture 38 AH-64 Apache aircraft.
Combined with the fact that Boeing still has a strong backlog of about $470 billion with more than 5,700 commercial airplane orders it can still rely on, BA stock won’t lose altitude any time soon.
Looking ahead to the second quarter, Wall Street expects Boeing to earn $2.36 per share on revenue of $23.28 billion. For the full year, earnings are expected to soar 30% year-over-year to $9.39 per share on revenue of $91.95 billion. And those earnings estimates may yet be too conservative, given the company’s aggressive cost-cutting initiatives.
Bottom Line for Boeing Stock
You would be hard-pressed to find a hotter and more stable defense stock in the market today than BA, which has outperformed the aerospace/defense industry’s gain of 24.5%.
Despite the company’s revenue dip, the market continues to value Boeing’s strong balance sheet and cash flows, providing BA stock the stability it needs to fly higher despite reaching 52-week highs. And when factoring the possibility for incremental dividend increases and share repurchases, BA stock won’t lose altitude as it heads to $200.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
