After Boeing (NYSE:BA) stock declined meaningfully, the shares are attractive, as the company looks poised to benefit significantly from multiple, strong trends.
Among these likely, positive catalysts are the continued easing of fears about the coronavirus, strong commercial airplane orders, the approval of the company’s Dreamliner planes by the Federal Aviation Administration (FAA), and increased defense orders in the wake of Russia’s invasion of Ukraine.
Easing of Covid-19 Fears and Strong Commercial Plane Orders
As I noted in a recent column on travel stocks, vaccines and new therapies have limited the danger from the virus, while governments are becoming less stringent and more upbeat in relation to it. Taken together, all of those developments should result in many more people traveling this spring and summer and into 2023. And, of course, that trend should, in turn, spur airlines to buy many more planes from Boeing.
There are already significant indications that this pattern is taking hold. Encouragingly, in January Boeing obtained net orders for 75 planes, including 53 net orders for the previously beleaguered 737 MAX. Two major U.S. airlines — American (NYSE:AAL) and Southwest (NYSE:LUV) — ordered 23 and 12 MAX planes, respectively, while Qatar Airways ordered 14 of Boeing’s new 777 freight plane and China Airlines bought four of the company’s new freighter.
Speaking of Qatar Airways, the Middle Eastern company agreed at the end of January to buy up to 100 planes, including at least 34 new freighter planes, from Boeing. Estimated to be worth a maximum of almost $30 billion, the deal also includes “a provisional order for 25 Boeing 737-10 planes, with options for an additional 25,” Barron’s explained.
Cumulatively, the order data suggests that the company’s domestic, freight, and overseas businesses are all showing signs of strength.
Likely Future Catalysts
Boeing has had significant problems with its 787 Dreamliners, as the FAA has said that the company must “improve the 787 manufacturing process.” But “most” of Boeing’s “suppliers” believe that the firm will resume delivering the planes starting in Q3, RBC Capital analyst Ken Herbert reported, according to a January Bloomberg report. The resumption of the deliveries should provide BA stock with a positive catalyst.
Meanwhile, on Jan. 9, a Chinese airlines flew a 737 Max plane within China, marking the first such flight since Beijing ordered airlines to stop using the plane in 2019. And Boeing CEO Dave Calhoun has said that the company intends to resume delivering the MAX to China this quarter. Such a resumption should be positive for Boeing’s shares.
Finally, the company’s CFO, Brian West, said during the company’s earnings conference call in January that he expects its free cash flow to “improve in the second quarter, and…meaningfully accelerate in the back half of the year.” Assuming that scenario does unfold, it, of course, should be positive for BA stock.
The Likely Impact of Russia’s Invasion on Boeing
So far, the conflict in the wake of Russia’s invasion of Ukraine seems to be taking place only in the latter country. Consequently, there’s no reason to believe that it will prevent the lion’s share of travelers from going to their intended destinations this spring or summer.
The conflict has caused energy prices to spike, making flights more expensive and hurting consumers’ ability to travel. But there’s no evidence that this situation will last for years, so I don’t expect airlines to purchase fewer planes as a result of it.
Meanwhile, in Q4, defense and space accounted for $5.86 billion of the company’s $14.79 billion of sales. And I believe that the Russian invasion should be very positive for Boeing’s defense business. In the wake of Russia’s attack, Russia’s other neighbors, particularly those that are not close allies of Russia, will probably look to bolster their militaries “just in case.”
And the neighbors of other aggressive nations, such as China and Iran, will also likely become more worried that they will be attacked. The former countries will probably believe that, if Russia felt that it could benefit by attacking Ukraine, other nations may take similar actions.
For example, Saudi Arabia will probably become more worried about an attack on it by Iran, while Australia and, of course, Taiwan, will likely become more wary of China.
The Bottom Line
The acceleration of positive travel trends, along with other positive catalysts, should meaningfully lift BA stock during the rest of 2022. Moreover, Russia’s invasion of Ukraine should significantly lift the company’s defense revenue while only having a slight, negative impact on its commercial airline business.
Given these points. I recommend that investors buy BA stock.
On the date of publication, Larry Ramer did not hold a position in any security mentioned in the article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been GE, solar stocks, Plug Power, and Snap. You can reach him on StockTwits at @larryramer.