The recent bloodbath in tech and semiconductors underscore how brittle investors can be when stocks are trading at 52-week highs. Valuations concerns emerge. But a 52-week high status alone doesn’t warrant profit-taking, even in bear markets. And this describes Chicago-based Boeing Co (NYSE:BA) and BA stock.
Thanks to a combination of a strong backlog of about $470 billion with more than 5,700 commercial airplane orders it can still rely on, BA stock — despite trading at 52-week highs — won’t lose altitude any time soon.
And while the shares have already soared some 59% over the past year, there’s a strong chance that the Dow component — fresh of a solid first-quarter earnings beat — can reach $210 by the end of the year, delivering an additional 4% returns.
Reasons to Love BA Stock
For starters, the world’s largest plane-maker, which boasts a strong balance sheet and cash flows, is now operating in an improved airline/defense industry with better growth prospects. The company recently acknowledged the growing services market, which should complement domestic support for key defense and space programs. The recently released defense budget by the Trump Administration, which promises to modernize the armed forces, will create much-needed tailwinds for Boeing stock.
What’s more, the company last month announced 198 net orders for first quarter, which marked a whopping 63% rise year over year, topping last year’s mark of 121. At the same time, Boeing has also begun to grow its profit margins, which rose to 8.5% in the first quarter, compared to 7.2% in 2016. And the margin improvement is key to the company’s profitability, especially as revenues have been on the decline. To that end, BA has begun to trim its headcount to offset declining revenue, which missed first-quarter estimates.
And based on Boeing stock’s guidance, management doesn’t expect any headcount reduction to impact overall performance. For fiscal year 2017, revenue guidance of $90.5 billion to $92.5 billion calls for a slight drop of around 2%.
Meanwhile, BA raised its core earnings-per-share forecast from a prior range of $9.10 to $9.30 to a new range of $9.20 to $9.40 range. Obviously, this means management believes the company can achieve its delivery goals on a lower engineering headcount, which implies more profits on the bottom line.
Looking ahead to the second quarter that ends in June, 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
BA stock won’t ever be confused for a high-flyer, but the company’s strong balance sheet and cash flow provides the stability the shares need to climb despite reaching 52-week highs. Combined with the company’s solid dividend yield of 2.8%, which is roughly a point above the S&P 500 index, you would be hard-pressed to find a more stable Dow stock, especially under the Trump administration.
And when factoring the possibility for incremental dividend increases and share repurchases, BA stock should reach $210 by the end of the year.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
