Boeing Co (BA): Profit Report Boosts Bull Case for Patient Investors

Outside of a large accounting charge, Boeing Co‘s (BA) earnings report was pretty good, and given the response of BA stock, shareholders should feel confident that the investment thesis hasn’t really changed.

Boeing Co (BA): Profit Report Boosts Bull Case for Patient Investors

For the most recent quarter, BA earnings fell to $1.22 billion, or $1.83 a share, from $1.34 billion, or $1.87 a share, in the year-ago period. However, after charges, pension and expense and other costs, Boeing’s core earnings came to $1.74 a share. Analysts polled by Thomson Reuters were looking for earning to come in at $1.82 a share.

Whether you strip out charges or not, BA missed Wall Street estimates. The market, however, didn’t care. Boeing stock was actually higher in late-morning trades.

Certainly better-than-expected revenue helped. Rather than decline as expected, the top line grew to $22.63 billion from $22.15 billion a year ago. The Street was looking for revenue for a 3.2% to $21.44 billion.

Most importantly, Boeing maintained its full-year outlook.

Charges stemming from BA’s program to provide tankers to the U.S. Air Force have been weighing on investors’ minds for some time, so it’s good to get that out of the way. It comes as a great surprise that BA had free cash flow of $483 million when analysts projected an outflow of $357.6 million.

Even Boeing’s Bad News Has an Asterisk

Of the tanker contract, Citigroup analysts said in a client note, “It’s the gift that keeps on giving as Boeing absorbed another charge on tanker, but the cash flow story is intact.”

On the commercial side, aircraft deliveries declined year-over-year amid mounting fears of an airliner glut. There are also concerns about the 787 Dreamliner program’s ability to recoup its development costs on schedule. However, it could be argued that much if not all of this is baked into the BA stock price.

The real hero of the quarter was the defense, space and security segment, which posed a 19% gain in revenue, led by military aircraft. Commercial aircraft sales slipped more than 6%. And as expected, the commercial aircraft backlog declined to $423 billion from $431.4 billion.

Slower production, discounts and weak global growth will likely weigh on BA stock all year, but shares still offer a compelling value for patient investors. With a forward price-to-earnings ratio of just 14, BA stock trades well below its own five-year average, as well as the broader market.

Sentiment is clearly weighing on shares and there’s no telling when Boeing stock will get some deserved multiple expansions, but with a healthy dividend yield of 3.3% for new money, it shouldn’t be too hard to wait.

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

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