The Boeing Company: Keeping It Plane Simple

  • Boeing has been one of the “Darlings of the Dow” for a long time
  • The company has a lot of growth opportunities, both in the commercial plane space and the defense industry
  • The stock price has almost doubled over the past year, and the company actively buys back shares and pays out strong dividends
  • The space has several key players, but Boeing is continuing to gain ground on most of the competition
  • Geopolitical tensions could weigh down the company’s performance over time

On February 19th, 1982, the Boeing 757 flew for the first time. 37 years later, on February 19th, 2019, the company’s 787 hit 801 MPH, supported by a jet stream that pushed it to record-breaking speeds, helping it to move faster than the speed of sound. For comparison, the ordinary cruising speed is 561 MPH.

Boeing always seems to be going full-throttle ahead, 250 MPH faster than everyone else. They have been a force to be reckoned with for a long time, both in terms of innovation and market performance. The stock returned 11.5% over a very dismal 2018 and has already returned 30.3% YTD for 2019. It has provided key support to the Dow Jones Industrial Average index, serving as both a market and industry leader.

Source: Charlie Bilello

The company operates in three business segments: Commercial Airplanes, Defense, Space & Security (DSS), and Global Services. Their Commercial Airplanes segment, 60% of their total company, grew at a year-over-year rate of 4.7% for December 2018. DSS grew 12.8% and Global Services 16.7%.

Source: Capital IQ

The company, and the industry, both have several opportunities for growth, in both the private and public sectors. The government has entered into several contracts with Boeing in particular, and the demand has increased among both domestic and foreign airlines for Boeing planes.

Overview of the Industry: Aerospace and Defense

The Aerospace and Defense industry is expected to experience strong growth in the coming years, as military expenditure increases and passenger travel demand grows. Backlog is at its peak, so manufacturers are expected to begin to push out product at a rapid pace, which will support higher revenues. However, the plans for increased production puts pressure on suppliers, and that could potentially limit substantial increases in production.

The Boeing 737 and Airbus A320 are two products that carry a large amount of backlog, so the production rates of these planes, in particular, are expected to increase substantially over the next year. There was a problem with the supply chain in 2018, in both engine and fuselage delivery, which resulted in delays in production. The delays are expected to diminish into 2019.

Source: S&P 500

The government provides significant support for these companies through the US defense budget, with a 10% increase in budgetary allowance for FY2018 and a proposed 3% increase in FY2019. There is a gap between approval and implementation, so the increased allocation will be spread out over the next several years, further fueling the DSS segment of Boeing’s company.

Source: Peterson Foundation

The US spends an extraordinary amount of money on national defense, more than China, Russia, Saudia Arabia, India, France, the UK, and Japan combined. For 2019, the budget is $686B, with a $597B base budget. This is good for Boeing, and other companies in the Aerospace and Defense industry, as the US government, utilizes the technology created by the manufacturers in the space. Boeing has already taken advantage of these relationships through contracts with the US Airforce, the US Navy, and NASA.

Defense, Space, & Security: Partnerships with the Government

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Disclaimer: These views are not investment advice, and should not be interpreted as such. These views are my own and do not represent my employer. Trading has risk. Big risk. Make sure that you ...

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