Time to Back Up the Truck on Boeing Stock?
While Boeing Co (NYSE:BA) stock is one of the most notable companies in the Dow Jones Industrial Average, Boeing stock could see some significant bullish moves in the next few weeks.
Air shows are important barometers of success for aerospace companies, especially one like Boeing. The Farnborough Air Show in England happens every two years and it serves as an important barometer on Boeing’s performance. Farnborough is so crucial that outgoing British Prime Minister David Cameron, with one foot out of 10 Downing Street’s front door, saw it fit to open the show on July 11 as one of his last official acts.
Aerospace is an essential sector. In the U.K. alone it accounts for well over 130,000 jobs and tens of billions of dollars in revenue. So far, the 2016 edition of Farnborough has been kind to Boeing stock, trading at about nine percent lower year-to-date. Boeing stock is also strongly recovering, about three percent, from the post-Brexit market collapse. BA stock is not at its 2015 high of $155.00 per share, but it’s still trading at $131.00 per share. On average, analysts expect Boeing to hit $150.00 this year, implying a 16% gain. The more bullish analysts see a price target of $196.00, a more than 40%. (Source: “Analysts Advise About Boeing Co (NYSE:BA),” ZergWatch, June 30, 2016.)
Boeing stock is recovering because despite the fact that it has a backlog of orders to last the next seven or eight years, demand for new planes has not waned. The fact that Boeing’s competitor Airbus is also getting an onslaught of orders serves as another reminder that business in the airliner business is good. In other words, Boeing stock will be sitting on bullish territory for the next few years. (The reason I chose to speak of years rather than months is that airplane companies get paid when they deliver and now there are more deliveries to make.)
Indeed, both Boeing and Airbus have forecast a growing air travel market of as many as 16 billion passengers by 2050. Boeing now expects 4.1% higher overall demand for planes in the next 20 years compared to earlier forecasts. It expects total overall demand for 39,600 airliners worth $5.9 trillion. (Source: “Boeing sees 20yr demand beating targets as inks China deal,” Yahoo! News, July 12, 2016.)
On the sidelines of that prediction, Boeing also said it has agreed to sell 30 of its new “737 Max” airliners to the Chinese state-owned carrier Xiamen Airlines for a market value of $3.4 billion. Donghai Airlines plans to acquire 25 medium-haul and five long-haul Boeing airliners as well. (Source: Ibid.)
Speaking of Asia…
The Asia-Pacific remains the main driver of airliner demand over the next few years and China is becoming the single largest customer. If these orders weren’t enough, Boeing plans to develop a new program to meet demand in a segment described as middle of the market, where its rival Airbus has enjoyed some success. Airbus has led the path with its “A321 Neo,” able to carry 200 passengers over a distance of 4,000 nautical miles, well within the range of the popular London to New York City travel route.
The Boeing “757,” in service since the early ’80s, filled this role but it can no longer compete against the current generation of super-efficient planes. This is good news for Boeing, as it has the chance to design and sell a replacement. It’s also good news for Boeing stock.
As for shareholders, Boeing is the kind of company that needs some research—investors should learn how this company works. The following are some basic facts to help you better gauge Boeing stock’s performance.
Boeing was one of the first companies to make airplanes in the world, starting in 1916. Its main competitors are Airbus, Lockheed Martin, and Nothrop Grumman. These days, Boeing continues to work in the field of civil aviation, military, and space exploration. In the past two decades or so, Boeing consolidated its position as the top commercial aircraft company by acquiring Rockwell International and McDonnell Douglas. Civil aviation accounts for less than half of Boeing’s business.
Historically, Boeing stock has shown a strong correlation to the global economic situation. From 2005 to 2007, BA stock grew rapidly, rising from $58.00 to about $105.00 per share. The 2008 international economic crisis forced BA stock down to $30.00!
The importance of China for Boeing cannot be underestimated. Demand for travel as a middle class emerges in the world’s most populous country has stimulated a huge appetite for new airliners. This demand has allowed Boeing to defy expectations even when the overall economic picture in the West fails to impress.
In general, to predict Boeing stock’s share price, you can follow the overall development of the global financial market. The socio-economic gap between different regions in the world has seen air travel in the West grow quickly from the 1950s to 1980s. Since the late 1990s, growth in the East, dominated by China, has switched the trend.
In this sense, much of the Boeing backlog of confirmed orders—barring any unexpected cancellations—is based on customers in the city states of the Middle East and China. Investors should have more than welcomed the potential $25.0-billion to $30.00-billion deal that Boeing has signed with Iran Air. (Source: “Iran Air eyeing ‘historic’ deal with Boeing,” PressTV, June 6, 2016.)
If there’s a bottom line on Boeing stock, it’s that the constantly increasing backlog and long-term increasing demand forecast until 2050 for airliner sales warrant a confident and bullish outlook.