Why Have We Revised Our Price For Boeing Upwards?

Boeing (NYSE:BA) is a company that has seen macro conditions hurt its revenues over most of 2016, and much of 2017. The company struggled to keep investors happy as both the top and bottom lines suffered on notably lower aircraft orders. The weak economy forced air carriers and governments to delay or cancel orders for new aircraft, while being forced to fly airliners built more than 20 to 30 years ago after being refurbished multiple times.

Historically, orders from airlines have been cyclical in nature, and it appeared as though the market was going through a sustained slump. That said, towards the second half of FY 2017, there was a notable change in the company’s fortunes.

• It all started in June, when Boeing released its global market outlook for commercial jets. In the report, the company raised its 20 year forecast for global commercial aircraft demand by 3.6%. The largest aircraft manufacturer predicted that there will be a requirement for more than 41,000 new planes worth about $6 trillion between 2017 and 2036, globally. This is significantly higher than what was predicted by the company in 2016.
• Furthermore, the company’s stock price jumped by almost $30 after the Q2 earnings call, where the company beat the consensus earnings estimate by almost 30 cents, representing a firm turnaround in the commercial business, owing to the heavy increase in air travel demand. Consequently, the company also announced its intentions to increase production rates across most of its programs, most notably at the 737 program.
• Toward the end of the year, the company managed to capture  many high yielding commercial contracts. Most notably, the orders won at the Dubai Airshow proved to be testimony to the fact that Boeing was finally emerging successfully from the slump that plagued its top and bottom lines for many quarters prior.
• At the airshow, Boeing recorded a major order book increase of close to $47 billion. Most of the orders were for the 737 MAX aircraft. That said, the company also managed to rake in about 51 widebody orders and commitments, including the critical Emirates deal that was supposed to go to Airbus.
• Boeing hopes to end the year on a high note, while heading into 2018 stronger than expected. Management expects earnings per share to come in around $11.20-$11.40, up ten cents in comparison to the previous guidance range of $11.10 – $11.30. As for 2018, the company hopes to increase revenues and earnings significantly on the back of increased production and additional revenues from BGS (Boeing Global Services).

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