Given the higher spending by the U.S. Defense Department, defense contractors should continue growing revenue this year. For the Boeing Company (NYSE:BA), winning billion-dollar-plus orders in the aviation space and the army virtually secures the Boeing dividend yield of 3.2%. This makes BA stock ideal for income investors seeking some underlying capital growth appreciation.
Big Orders for BA Stock
On March 21, Boeing won a $1.4 billion contract with BOC Aviation, a Singapore-based aircraft leasing firm. The week before that, on Mar. 16, the U.S. Army award Boeing with a $3.4 billion contract. The Army is buying 268 Apache helicopters. The remanufacturing process may result in a faster delivery time and lower operational costs for Boeing.
The big contracts followed Morgan Stanley’s downgrading of the stock on March 13.
Since the bearish note, BA stock fell from a yearly high of $185.71. With a healthy backlog, strong cash flow and solid growth, Boeing’s business appears prosperous. If the downtrend on the stock continues, valuations will get even more compelling. The stock’s forward price-to-earnings ratio is a bit over 17 while the PEG, or P/E to growth, is a comfortable 1.29 times.
Value investors may want to heed the analyst’s bearishness, since the stock is up close to 34% in the past year. Much of the gains may be due to the anticipation of President Donald Trump raising defense spending and homeland security.
The flow of money away from international aid and environmental protection and towards security. The secular shift in the political policy may lead to higher orders for Boeing.
The tailwinds aren’t just helping BA stock soar. Lockheed Martin Corporation (NYSE:LMT) is valued at similar price multiples to Boeing. The jet fighter maker opened a new F-35 production facility in Johnstown, Penn. Its CEO, Marillyn Hewson, expressed optimism over the company’s prospects. She cited favorable Trump administration goals and high demand from international customers as reasons for the positive tone. LMT shares have a dividend yielding around 2.7%.
United Technologies Corporation (NYSE:UTX), whose shares pay a dividend yielding around 2.4%, said in January it would not make any big M&A (merger and acquisition) deals this year. It is spending more on R&D, particularly in the CCS and Otis units. The company also reaffirmed its guidance when it reported Q4 results on Jan. 25.
Trump’s defense spending is a clear tailwind for BA stock and for Lockheed and United Technologies. However, ahead of the policy announcement, markets priced in the higher aerospace spending by government.
To resume its upward march higher, Boeing also needs airliners ordering new planes. As they retire older aircrafts, airlines will order Boeing 757, 767, and 797 models. The 797 model is, of course, in development. It may begin flying in 2025. For long-term investors of BA stock, the new plane will ensure Boeing stays competitive. The risk of delays and higher costs is worth securing its place in the aerospace industry.
Takeaway on BA Stock
Boeing continues to trend towards yearly highs, ever since its shares jumped after the elections in November. A pullback would give value investors an entry point.
If lawmakers and opposition curb the boost in spending, Boeing’s stock may fall. Yet any dip in BA stock is welcome because it lets investors buy it at cheaper levels.
As of this writing, Chris Lau did not hold a position in any of the aforementioned securities.