Shares of Boeing (BA - Free Boeing Stock Report) advanced after the aerospace/defense behemoth reported better-than-expected second-quarter earnings results. What's more, management raised its bottom-line guidance for full-year 2017. The stock price appears set to reach a new all-time high.
For the June interim, Boeing's top line came in at $22.7 billion, which was below our estimate of $23.2 billion. However, lower operating expenses, research & development expenditures, and taxes, along with greater sales/deliveries of more profitable planes, led to wider margins and share net of $2.89. For comparison, our estimate, which was higher than Wall Street's consensus expectation, was $2.60 a share. All in all, this was a terrific quarter for Boeing.
Looking at the period in more detail, the company delivered 183 commercial aircraft, compared to 199 in the year-earlier period. That said, thanks to the aforementioned expense reductions, earnings from this division advanced nicely. In addition, during the quarter, Boeing booked 183 net orders, and its backlog remains massive with more than 5,700 airplanes valued at $424 billion.
The Defense, Space & Security segment also experienced a hefty margin and profit increase, thanks to productivity improvements and lower operating costs. Its backlog at quarter end was $58 billion, of which 37% represented orders from international customers.
Looking ahead, management maintained its full-year 2017 revenue target of $90.5 billion-$92.5 billion, but meaningfully raised its GAAP share-earnings expectation to $11.10-$11.30 (was $10.35-$10.55). The June-quarter outperformance, along with continued, better cost controls, and a slightly lower tax rate, were the main drivers here. As for our figures, we are raising our 2017 share-net call to $11.10, from $10.50. We are also boosting our 2018 bottom-line estimate by $0.50, to $11.50 per share.
We remain bullish in regard to Boeing's business prospects. Its commercial aircraft backlog should support full production for many years. In addition, we anticipate more bookings, as fuel costs are relatively low and demand for flights remains high. This will continue to improve the financial positions of many airlines and their desire to replace their aging fleets with new aircraft. On the defense side, international sales are likely to advance at a solid rate, and Boeing may well receive a domestic boost if the Trump Administration can successfully push through an increase to the U.S. Defense Budget.
As for the stock, as mentioned, it has now reached an all-time high, and is certainly not inexpensive. Nonetheless, our business outlook for Boeing is positive, and the equity does still hold some near-term appeal, especially if the current bull market persists. That said, we encourage less nimble investors to look elsewhere, since the issue does not stand out for the long term. In fact, it is already trading well within our three- to five-year projected Target Price Range.
About The Company: The Boeing Company is a leading manufacturer of commercial jet aircraft. It also produces fighters (F-15, F/A-18), C-17 cargo carrier, V-22 helicopter, E-3 AWACS, E-4 command post, E-6 submarine communicator, ground transportation systems, develops the space station, and does work on the F-22 (ATF). In 2016, foreign sales accounted for 59% of overall revenues, and R&D amounted to 4.9% of sales.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
