Boeing Co (NYSE:BA) stockholders have had a first-class ride for quite some time, enjoying 54% year-to-date gains in BA stock, compared with the 8% rise in the S&P 500 index.
The Chicago-based jet maker has not been known as a high-flyer, but BA stock has benefited from the company’s strong balance sheet and rising cash flow, which provides the stability investors crave — particularly in an overheated market.
Combined with the company’s solid dividend yield of 2.4%, you would be hard-pressed to find a more stable Dow Jones stock.
The shares, which opened Friday at about $241, have overtaken Goldman Sachs Group Inc (NYSE:GS) as the priciest component in the Dow Jones Industrial Average. As it now stands, Boeing carries more muscle over the direction of the Dow. But with BA stock now at all-time highs, how much more runway does Boeing, which missed analysts’ second-quarter revenue projections, have left?
The company answered that question with strong cash flows and breathtaking full-year guidance.
A High-Flying Quarter
On Wednesday, the aerospace giant reported a strong rise in Q2 free cash flow, reaching $4.5 billion from $2.5 billion in the same period a year before.
Notably, first-half free cash flow has now doubled, compared to the first half of 2016, rising to $6 billion up from $3 billion. Meanwhile, core earnings-per-share of $2.55 crushed Wall Street’s estimates of $2.30 by 25 cents. Boeing now expects full-year earnings in the range of $9.80 to $10 per share, above Street consensus of $9.80 per share.
“Our teams are delivering better performance in every segment of the business, which is reflected in our strong second-quarter results and improved 2017 outlook,” said CEO Dennis Muilenburg in a statement. “Our robust cash flow enabled us to return more value to shareholders, invest in future growth and in our people, including a plan to accelerate pension funding that also reduces risk and cyclicality in our business.”
At this point, it didn’t matter that second quarter revenue of $22.74 billion fell short of Street estimates. Analysts were racing to adjust their estimates higher. Credit Suisse upgraded their rating for the company to “outperform” from “neutral,” while bumping its 12-month price target by 50% to $300 from $200.
“With yesterday’s explosively positive response to Q2, BA shares are now up 49% this year, and we fully recognize that we are late with this call, and a bit frustrated with ourselves too,” Credit Suisse wrote in a note to shareholders.
Elsewhere, Jefferies boosted its target to $275, while Deutsche Bank raised its price target to $280.
What’s Ahead for Boeing?
Boeing attributed its solid quarter to a combination of strong demand for air travel and the success of the company’s cost-cutting efforts, which has a positive effect on its profit margins, which have now risen in two straight quarters. And the margin improvement is key to the company’s profitability, especially as revenue have been on the decline.
What’s more, the company, which has been trimming headcount to offset declining revenue, is now operating in an improved airline/defense industry with better growth prospects. The fact that Boeing’s backlog at the end of the second quarter was up to $482.2 billion, from $479.5 billion at the end of first quarter, suggests revenue will being to stabilize in the quarters ahead.
And here’s the thing: The company’s reported backlog included $27 billion of net orders during the quarter, making it even more impressive. And to say nothing about the growing services market, which should complement domestic support for key defense and space programs creates additional tailwinds for Boeing.
Reasons to Love BA Stock
Based on the Boeing’s full-year guidance, the world’s largest plane maker is showing no signs of slowing down. The company’s strong balance sheet and cash flow will create a strong floor for BA, regardless of what the market does. And when factoring in the possibility for incremental dividend increases and share repurchases, BA stock should reach $260 by the end of the year.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
