What To Expect From Boeing’s Q1 Earnings

After several quarters of uncertainty, Boeing (NYSE:BA) finally managed to deliver exceptionally strong earnings to end 2017 with a bang. The company posted an adjusted EPS of about $4.80 buoyed by the tax cut, representing a near 94% increase year over year. Additionally, the airplane manufacturer managed to post revenues to the tune of $25.37 billion, up by almost 9% year over year. Revenues were spurred on by a significant improvement in commercial and defense revenues. We expect a similar momentum to drive earnings through most of 2018 as well.

Given the above, while an increase in the share price is warranted, we believe that, at the moment, the price is being guided more by euphoria, than by actual fundamentals. In this respect, we feel that the stock price is overvalued by almost 9%.

We have created an interactive dashboard to best elaborate on our valuation method and reasoning. Click on the link to arrive at your own forecast.

• Over the second half of 2017, there emerged a strong global increase in passenger traffic and airline profitability. Both these factors worked heavily in favor of Boeing’s commercial business, and is evidenced by the spike in the sheer volume of orders the company received through Q3 and Q4. We expect this momentum to carry through 2018 as well. In this respect, the company hopes to deliver another record number of planes in the year.
• The company expects to see a heavy ramp up in the production across its B-737 and B-777 programs through 2018 and 2019. Not only will this help the company realize its margin expectations, but it will also help encourage more orders, considering the wait time is expected to reduce greatly.
• While Boeing is excited to make sure production across its main programs increases through the year, there are a few headwinds that could cause a potential problem. The airline manufacturer’s 737 fuselage provider, Spirit AeroSystems, is facing problems in keeping up with Boeing’s production rate increases. That said, its CEO, Thomas Gentile, said that the company is recovering from the challenges well, and that Spirit will be on track to achieve the rate increases for this year through the second half. We can expect to learn more about this in the upcoming earnings call.
• At Defense, we expect the company, like many of its competitors, to benefit from the increase in the defense budgets the world over. That said, the KC-46A program is again poised to be a problem for the segment. The delays that plagued earnings through most of last year, seem to have spilled into the current year as well. In this respect, we expect to see additional charges on the program that could hurt earnings through 2018.