Those Betting Against Boeing Stock Now Might Be Kicking Themselves Later
The Boeing Company (NYSE:BA) has done what all companies want after reviewing their earnings, especially one focused on taking off and gaining altitude. Boeing has set its targets for 2015 upwards as it heads toward $100 billion in revenue with record levels of airliner production and an expected 755 to 760 deliveries. These are unprecedented numbers in the aerospace sector. What will this mean for Boeing stockholders? Let’s take a look.
This Could Send Boeing Stock Soaring
Boeing stock has set itself on a steady climb and another record year. The American aerospace giant’s performance exceeded analysts’ 2015 expectations for the third quarter. (Source: “Boeing Q3 Profit Increases, Results Top Estimates; Lifts 2015 Outlook,” NASDAQ, Oct. 21, 2015). Quarterly net earnings increased 25% to $1.7 billion from revenues of $25.9 billion dollars (+ nine percent). The operating margin was an impressive 10.2% in an industry where the margins are traditionally tight.
Then again, Boeing’s performance has been improving steadily. The company says its dividend has increased more than 88% in two years (2013-2014). The period in question suggests that low oil prices alone, which have prompted airlines to order unprecedented numbers of airliners, are not the only reason for Boeing’s success
Meanwhile the third-quarter results offer sufficient evidence to expect that Boeing may revise its 2015 goals upwards. The company, which is just a few months away from celebrating 100 years of activity, expects to achieve the kind of revenue befitting such an occasion: $100 billion and beat all its production records with 755 to 760 airliners delivered to airlines. The combination of historical legacy and impressive business statistics, along with several years of demand for new airliners ahead, should give the already-successful Boeing stock even more lift.
Boeing’s CEO, Dennis Muilenburg, who took over on July 1st from James McNerney, began his tenure with the kind of bang made by a supersonic jet. The new chief executive took a historic strategic decision by announcing that Boeing would take a leap into China, building a factory in the country. Specifically, Boeing will set up a finishing site (cab design, painting, etc.). (Source: “China’s first jet planes to debut without clearance of a US cert,” Business World, October 23, 2015.)
This allows the company to secure more Boeing orders, competing more directly against Airbus, which already has an assembly line in China. By focusing on the aesthetics, Boeing can reduce the risk of potential technical mishaps that could occur in flight, gradually increasing the level of responsibility. This should please any BA stockholder.
China is just the latest venture. Indeed, Boeing has just won a tender contract valued at $2.3 billion to deliver 22 Apache and 15 Chinook helicopters to the Indian armed forces. (Source: “Boeing Receives Order from India for 22 Apache and 15 Chinook Helicopters,” Boeing, September 29, 2015.). Boeing is planning to install an assembly plant in India to facilitate this contract and gain additional ones in the future.
56 Million Passengers Have Already Flown on the Boeing Dreamliner
In 2015, Boeing’s 787 Dreamliner has achieved a positive cash position after years of development delays and Li-ion battery issues—all of which were resolved. The immediate beneficiary is Boeing’s bottom line; after years of losing money, the 787’s profitability will increase steadily with each new unit delivered. Clearly, Boeing will have to invest more money for each new long-haul product generation, but the rewards eventually arrive.
The Boeing 787’s profitability should significantly improve with the planned production increases of 10 aircraft per month, which will become 12 per month in 2016 and 14 per month in 2019. To date, Boeing has gotten 1,100 firm orders for the 787. Some 332 aircraft were delivered since the end of 2011 while 787 airliners in service worldwide have already flown 56 million passengers to thousands of destinations.
Here’s the Bottom Line on Boeing Stock
Boeing shareholders can also expect upside from increased production rate plans for all Boeing programs (except for the 747-8) as the backlog stands at a record $485 billion. Two-thirds of the commercial aircraft backlog ($426 billion at end-September 2015) consists of aircraft to be delivered outside Europe and outside the United States where markets are growing the fastest. That could be a huge catalyst for Boeing stock.