The stock chart for Boeing Co (NYSE:BA) is definitely eye-catching. For the year so far, the shares have performed better than operators like Alphabet Inc (NASDAQ:GOOGL, NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL). In all, BA stock has gained 34%.
But this is no fluke. Boeing stock has been on a nice run for some time. During the past five years, the return has come to a robust 183%.
Yet can the good times continue? Actually, JPMorgan Chase analyst Seth Seifman thinks so. In a recent report, he noted:
“BA is among the stocks best positioned to benefit from positive aero fundamentals. BA is consciously trying to shape the industry to capture more value for itself, which could mean strong relative performance and potential upside to estimates.”
To this end, he upgraded his price target on Boeing stock from $204 to $240. This implies a 16% return.
OK, so what are some of the main drivers? Well, here’s a look at three:
BA Stock Advantage No. 1: Secular Growth for the Military Business
Back in late May, Lt. Gen. Vincent R. Stewart testified before Congress about the biggest military threats to the US, including North Korea, Russia, China, Iran and of course, violent extremist organizations like ISIS. He said:
“We are faced with the rise of foreign militaries with ever-improving capabilities, threats from cyberactors, highly adaptive terrorist organizations, aggressive nonstate actors, and hostile foreign intelligence services … These challenges must be seen in the broader context of a highly connected and interdependent strategic environment, characterized by the emergence of new political, military, and economic centers and affected by technology and mass communication, mass migration, and urbanization.”
Kind of scary, right? Definitely. But of course, such factors will drive more defense spending, which will bolster Boeing stock.
The Donald Trump Administration has requested a $54 billion increase to the defense budget, which includes a $30 billion amendment for this year. It appears that one of the expenditures will be for Boeing’s Super Hornet jet, which is an alternative to Lockheed Martin Corporation’s (NYSE:LMT) F-35 fighter.
But BA is also taking important steps to restructure its military defense business. Some of the moves involve cutting back on managerial layers — which should not only reduce costs but also improve the nimbleness of the organization — but also to focus more on the growth opportunities, such as autonomous systems.
Boeing Stock Advantage No. 2: Secular Growth for the Airline Business
The airline business is the main driver for BA stock.
The good news is that the momentum continues to be standout. During the latest Paris Air Show, BA snagged $75 billion in new deals for 571 planes. Airbus SE, on the other hand, was able to sign only $42 billion in contracts.
A key for BA is that the company has been successful with its single-aisle jets, which have continued to see tremendous demand. Consider that the launch of the 737 Max 10 has already resulted in 16 new customers, such as United Continental Holdings Inc (NYSE:UAL).
More importantly for BA stock, the long-term demand for commercial aircraft is likely to remain robust. The company recently increased its 20-year global forecast for overall spending to a staggering $6 trillion, which comes to 41,030 jets.
Boeing Stock Advantage No. 3: Strong Financials
Boeing is a highly disciplined organization, even with some of the problems in its defense business. The company’s balance sheet is rock solid, with $9.2 billion in cash and short-term investments, and $4.85 billion in long-term investments.
Then again, BA stock continues to crank out strong cash flows. In the latest quarter, they came to $2.1 billion.
And yes, management has been quite shareholder friendly. In Q1, the company repurchased 14.9 million shares for $2.5 billion — and there is $11.5 billion remaining on the repurchase authorization. BA also hiked the dividend by 30% — bringing the yield to a respectable 2.7%.
Tom Taulli runs the InvestorPlace blog IPO Playbook and operates PathwayTax.com, which provides year-round tax services. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.
