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Bull of the Day: Boeing (BA)

Zacks

Boeing (BA) saw its stock price slip Thursday as part of the larger market downturn driven by Apple’s (AAPL) lowered sales guidance that pointed directly to a slowing Chinese economy. Despite trade war worries, Boeing recently lifted its quarterly dividend by 20%, landed new U.S. defense contracts, and sees a massive opportunity in India.

Recent News

The Pentagon announced last Friday that it awarded Boeing a $400 million U.S. defense contract for B-1 and B-52 bomber engineering services. The firm also landed multiple other contracts last week as it bolsters its business amid tariff worries.

On top of that, Boeing detailed near the end of December the overall outlook for growth in one of the largest emerging markets in the world. Boeing raised its forecast for commercial airplanes in India because of massive domestic passenger traffic and expanding low-cost carriers are set to drive the need for 2,300 new jets in the country over the next 20 years, which are valued at $320 billion.


One of Boeing’s market research divisions noted that India’s commercial aviation industry recently hit 51 consecutive months of double-digit growth. Plus, the aerospace firm said that the Indian economy is projected to expand by nearly 350% over the next 20 years to become the world’s third-biggest economy. "This will continue to drive the growth of India's middle class and its propensity to travel both domestically and internationally, resulting in the need for more new fuel-efficient short- and long-haul airplanes," Boeing’s Dinesh Keskar said in a statement.

"The success of this market segment will mean more than 80 percent of all new airplane deliveries in India will be single-aisles. And the superior economics and fuel efficiency of the new 737 MAX airplane will be the perfect choice for Indian carriers."

Overview

Along with the potential for years of growth in a rapidly expanding economy and the continuation of its successful relationship with the U.S. government, Cowen aerospace analyst Cai von Rumohr told clients at the end of November that BA is his number one pick for 2019 because it is in a “production sweet spot.”

Boeing also declared in December a new quarterly dividend of $2.055 a share. This marked a 20% climb from the $1.71 per share Boeing paid throughout 2018. Boeing’s new quarterly dividend will be payable on March 1, to shareholders of record as of February 8. Boeing also replaced its existing share repurchase program with a new $20 billion authorization, which is up from the $18 billion approved last December.

Price Movement

Overall, Boeing stock has climbed roughly 5% over the last year to help it crush its peer group’s roughly 19% slide, which includes fellow giants General Dynamics (GD), Lockheed Martin (LMT), Northrop Grumman (NOC), and Airbus (EADSY).

Despite Boeing topping its industry and the S&P 500’s climb during the last 12 months, shares of BA rest roughly 21% below their 52-week high of $394.28. This alone could set up a solid buying opportunity for those high on Boeing.

Valuation

Moving on, Boeing is trading at 21.5X forward 12-month Zacks Consensus EPS estimates at the moment. This represents a premium compared to the S&P’s 15.4X and its peer group’s 13X. Yet, BA stock has traded as high as 30.6X over the last year.

Plus, we can see that Boeing’s valuation picture is hardly stretched compared to where it has traded over the past 15 years.

Outlook & Earnings Trends

Lastly, let’s dive into the company’s growth prospects. Boeing’s Q4 revenues are projected to jump 6.3% from the year-ago period to reach $26.96 billion, based on our current Zacks Consensus Estimate. Looking ahead, the firm’s first quarter 2019 revenues are expected to climb 7.1% to hit $25.03 billion. Peeking even further down the road, Boeing’s full-year fiscal 2019 revenues are projected to jump 6.25% above our fiscal 2018 estimate to hit $106.1 billion.

At the bottom end of the income statement, Boeing’s adjusted Q4 earnings are expected to slip by 6% from the year-ago period to $4.51 a share. However, investors should be pleased to see that BA’s fiscal 2018 earnings are projected to surge 25%. And the company’s earnings are expected to climb 20% above our 2018 projection in fiscal 2019.

Maybe most importantly, Boeing has seen some positive earnings estimate revisions recently, as the charts below show us. These changes help us see that at least some analysts are more positive about the aerospace firm than they were not too long ago. And in the long-run earnings growth has been proven to be one of the best indicators of postive stock price movement.

Bottom Line

Boeing is a Zacks Rank #2 (Buy) at the moment. The company also sports “B” grade for Value and Growth in our Style Scores system. (Note: BA was a #1 (Strong Buy) when I picked Boeing).

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