Yahoo Finance Pros and Cons for Investing in Boeing Co (BA) Stock
Boeing Co (NYSE: BA) is on an upswing, as a perfect storm of trends, including strong aircraft demand, a cash boost from tax reform and a potential benefit from increased defense spending are all working in the favor of the Chicago-based aviation giant.
With a new aircraft fleet on tap this year (the 737 Max 9), and a fresh financial tailwind at its back for the nation's No. 1 aircraft manufacturer, the question is this: Just how high can Boeing stock fly?
Boeing stock at a glance. Founded in 1916, Boeing operates in four segments: commercial airplanes; defense, space and security; global services; and Boeing Capital. Each area is currently contributing to company growth, as Boeing reported a backlog of orders totaling $488 billion in the fourth quarter of 2017. Boeing reported that it delivered a record 763 aircraft in 2017 and it expects to deliver between 810 and 815 aircraft in 2018.
[See: 10 ETFs to Buy For Aggressive Growth.]
Boeing CEO Dennis Muilenburg credits the sharp upturn in BA stock to a philosophical shift in the aerospace sector. In a CNBC interview, he noted that the industry has morphed "from being a high-cycle business in the past" to "a long-term sustained growth business."
Price-wise, analysts have pegged Boeing stock one-year target estimate at $385 per share, an estimate buoyed by strong demand for aircraft and favored government business and economic policies, which have driven up BA's share price by more than 18 percent in 2018.
Pros of buying Boeing stock. Fundamental economics make Boeing a good addition to an investor's portfolio in 2018, market experts say.
"While overall economic growth is approaching 3 percent, expected earnings growth for Boeing is 16 percent in 2018 and 18 percent in 2019," says Mike Laubinger, vice president at Victoria Capital Management in Charleston, South Carolina (the company currently owns Boeing stock in client portfolios). "The surprising weakness in the dollar may also provide a boost to both earnings and foreign sales, while complementing stock growth is a reasonable 2 percent dividend yield."
The political trend to strengthening the defense sector accrues to Boeing's many defense industry offerings, Laubinger says. "A recent multi-billion-dollar order for defensive missiles is just one example of the opportunities in this sector," he says. "The strong rise in the company's stock price over the past year attests to investor's confidence that the favorable trend will continue."
[See: Artificial Intelligence Stocks: 10 Stocks Betting on AI.]
Others say the upside in BA stock is significant, with an abundant opportunity for growth. "Boeing is trading at a deep discount to intrinsic value, especially given their earnings growth rate," says Alex Parker, senior managing director at The Buxton Helmsley Capital Corp., which holds a net long position in Boeing stock.
Over the past three years, earnings have grown an average of 22.1 percent annually, but Parker believes the current trajectory of increased demand for Boeing products is very sustainable. "A 22 to 23 percent earnings-per-share growth rate for the next five-plus years is extremely reasonable," he says. "This is especially due to the aging fleet of airlines that is just only starting to be replaced, and given the Trump administration's favorable budget proposal."
Cons of buying Boeing stock. Like any manufacturing sector, there are no guarantees that the aviation industry won't be immune from an economic downturn, or other business variables.
"Any factors that affect air travel, shipping, and transportation are likely to ultimately affect Boeing as well," says Brent Glover, associate professor of finance at Carnegie Mellon University. "That set of factors can be large and far-reaching, from regulation, government contracts, and taxes, to changes in the demand for air travel."
Additionally, if President Donald Trump's budget and infrastructure proposals don't survive Congressional scrutiny, and are pared back or are even shot down, the outlook on Boeing stock could deflate, and take BA's stock price down in the process.
Another potential headwind is competition from deep-pocketed investors. "According to William O'Neil and Co., mutual funds own only 36 percent of the company stock so there could be buying pressure from this investment sector as outperformance of the company and the stock garner investor interest," Laubinger says.
The bottom line. The perfect storm of strong aircraft demand, a robust cash outlook due, in large part, to tax reform, and a boost from the White House's infrastructure proposal may be too attractive for investors to pass up.
"Boeing is more fairly valued than it was a year ago," says Sean O'Hara, president of Pacer ETFs Distributors, which owns BA in its Pacer US Cash Cows 100 ETF ( COWZ). "We screen for free cash flow yield in our Cash Cows ETF, which is how we came to own the stock. It has performed very well over the course of our ownership. And Boeing still has a relatively high free cash flow yield."
[See: Which Companies Spend the Most on Lobbyists?]
Going forward, O'Hara says he is cautiously optimistic on BA stock. "We think Boeing's business will continue to perform well," he adds. "They are dominating the global market for airliners and jets. We have to wait and see if they will benefit from the most current budget deal between the Democrats and Republicans in increasing military spending, but that could be a potentially good thing for Boeing going forward."
More From US News & World Report
