Boeing Co (NYSE:BA) is slightly lower in Wednesday’s early trade, with BA stock falling more than 1% even though the world’s biggest planemaker reported first-quarter earnings that beat Wall Street’s estimates.
The miss on the top line — Boeing’s fourth in the past six quarters — apparently has made investors gun-shy about buying BA stock near 52-week highs.
It’s fair reasoning. However, considering that Boeing’s cash flow is still on the rise, and factoring in shares’ 3.2% dividend yield, BA stock still looks like a bargain.
Here’s why.
Another Solid Boeing Quarter
For the quarter that ended in March, the Chicago-based defense company reported adjusted earnings of $2.01 per share — a 15.5% improvement year-over-year, and easily better than analyst estimates of $1.94 per share.
The troubling point was Q1 revenue, which declined 7.2% YOY to $20.98 billion, missing consensus estimates of $21.34 billion.
“With a sharp focus on performance and productivity, our team delivered another quarter of solid financial results, including year-over-year earnings growth and strong operating cash flow,” Chief Executive Officer Dennis Muilenburg said in a statement. “In turn, we continued to position Boeing for growth with investments in new products and services, innovation, and our people, while again demonstrating our commitment to return significant cash to our shareholders.”
Looking forward, though, it’s hard to see anything other than blue skies. Boeing raised its full-year earnings per share forecast to a range of $10.35 to $10.55 from a prior range of $10.25 to $10.45 per share. BA also raised its adjusted full-year outlook to $9.20 to $9.40 from a prior range of $9.10 to $9.30.
Revenue is expected to range from $90.5 billion to $92.5 billion.
The Bottom Line for BA Stock
Boeing has resorted to cost cutting in recent quarters to offset the decline in revenue. The company’s plan to scale back on its engineering workforce in June is one recent example.
At the same time, however, Boeing currently has a $473 billion backlog of aircraft orders with more than 5,700 commercial airplane orders it can still rely on. The company expects to deliver between 765 to 800 planes this year, well above 2016 deliveries. Boeing has already announced 198 net orders for first quarter, compared to just 121 in the year-ago quarter.
The fact Boeing believes it can achieve its delivery goals on a lower engineering headcount means more profits will trickle down to the bottom line. In that vein, Boeing management –which still forecast 2017 core earnings to be in the range of $9.10 to $9.30 per share — is focused on returning value to shareholders.
And when factoring President Donald Trump’s promise to increase defense spending, the attractive combination of income and value from BA stock could appeal to patient investors with long-term horizons.
Plus, with the company still forecasting higher deliveries for fiscal 2017, combined with rising free cash flow, Boeing stock can still pay.
As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.
