Time to Dump Boeing Stock? Hardly
The competition for Boeing Co (NYSE:BA) has gotten even tougher since Bombardier entered the 100–150-seat airliner market. The latter recently came away with a major contract with Delta Air Lines in a market segment the “Boeing 737” has typically dominated. Boeing stock also suffered a little from mixed first-quarter results, due to a new charge of $243 million related to the “KC-46” tanker. (Source: “Boeing records $243 million KC-46 charge as it seeks LRIP contract,” FlightGlobal, April 27, 2016.)
Boeing stock may not reach the fabled $196.00-per-share target, but it might well exceed its record-high of $153.00 in 2016. The key favorable factor, which also kept Boeing stock from falling significantly despite a mixed earnings report last week, is that the company has not changed its 2016 guidance. Since the earnings, moreover, Boeing announced the sale of 10 more 737 airliners to unspecified customers.
Boeing has not performed strongly in 2016. Boeing stock has lost over eight percent since the start of 2016. Of the major companies operating in the defense sector, Boeing has performed the worst. It lost a major contract to Northrop Grumman Corporation (NYSE:NOC) to design and build the next stealth bomber for the U.S. Air Force. (Source: “Boeing Is Dow’s Worst Performing Stock in 2016 (NYSE: BA),” 24/7 Wall St, April 2, 2016.)
Yet, some analysts have set a $196.00 per share price target for Boeing stock. (Source: “Boeing Co (NYSE:BA) Analyst Recommendation Outlook,” The Post, May 4, 2016.) So where would such upside come from, considering the target is the most optimistic? The latest results certainly lack the strength to lift Boeing to that exalted price point. Unlike the Northrops and Lockheed Martins of this world, Boeing has huge exposure to the low-margin world of commercial airliners.
One of the biggest surprises was the fact that Boeing, for the first time in many quarters, has seen higher revenue from its military division—despite having lost the bomber contract and not having any role in the Lockheed Martin “F-35.” Indeed, revenue from defense rose 19% to $7.96 billion (Source: “Defense sales buoy Boeing,” IHS, April 28, 2016.)
The Civil Aviation Division, which brings in 64% of the company’s revenue, suffered a 6.4% drop in sales to $14.4 billion for an operating profit of $1.03 billion, down 36% year-over-year. But the important fact to note here is that airlines pay manufacturers upon delivery and Boeing’s backlog is $480 billion (Source: “Boeing earnings drop 9% after charge for developing tanker,” USA Today, April 27, 2016.)
The bottom line on Boeing stock is that despite a slight and temporary blip, Boeing has managed to uphold bullish sentiment. It has kept its ambitious annual forecast unchanged.