Why We Revised Our Price For Boeing Upward

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BA: The Boeing Company logo
BA
The Boeing Company

Boeing (NYSE:BA) posted stellar earnings to start the year off with a bang. The company managed to surpass both the revenue and earnings consensus estimates by a significant margin. Revenue growth was boosted on strong performances across all divisions. Given the way things are going, the airplane manufacturer decided to raise its earnings guidance by close to 50 cents. It now expects the full year figure to lie somewhere between $16.40-$16.60 per share, while maintaining its revenue outlook at a range of $96-$98 billion. The company also raised its estimate for full-year operating cash flow to a range of $15-$15.5 billion. Previously, the company expected just about $15 billion in cash flow. Accordingly, we have decided to increase our price estimate for Boeing to $334.

Contributing Factors

Commercial Business Set To Boom: The commercial airplane business that had lulled through most of 2017 saw its luck turn around through the second half of the year. In the latest quarter, the segment managed to  raise its revenues by almost 5% to $13.7 billion. This jump in sales was attributable primarily to the increase in the number of planes delivered in the quarter. The company managed to deliver a heavy 184 planes while taking in close to 221 net orders, and this seems to only be the beginning. According to the CEO, Dennis Muilenburg, the airplane manufacturer is on track to achieve its target of delivering over 900 planes by 2020. This announcement comes at the time when air traffic is increasing at a notable 6-7% a year, thereby pushing demand for commercial airliners sharply upward.

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Increase In Defense Budgets Globally To Benefit Boeing’s Military Revenues: Countries the world over are working toward  strengthening their military programs in light of growing political turmoil globally. In this respect, many defense giants like Boeing and Lockheed Martin can expect to see a rise in orders going forward. The 13% jump in Boeing’s military sales in the latest quarter is testament to this fact. Through Q1, the segment was able to procure a new contract from Kuwait for 28 F-18 fighter jets. Most recently, it won a $22 million task order to support F/A-18 A-F and EA-18G aircraft for the U.S. Navy and the government of Australia. Further, Spain is buying 17 CH-47Fs to replace its 30-year-old CH-47Ds, in a deal worth $1.3 billion according to the U.S. Defense Security Cooperation Agency (DSCA).

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