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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Boeing

January 20th 2015

Boeing

NYSE Symbol: BA

Industry: Airline manufacturer

Price as of 1/20: $131.22

 

It's the start of the New Year and the sectors that led in 2014 may continue to lead in 2015 for at least a while. The turn of the calendar did little to help the price of crude oil. Most experts believe it's going lower, but how much lower is the big question.  The US rig count or the number of rigs drilling for oil is already going down although many experts believe the rig count will have to continue to move lower by 500 to 800 more rigs stopping production. The current rig count in the US is around 1700 to 1800. The retail sector is typically one of the main beneficiaries of lower oil prices, but so far the retail numbers have not improved. Once again a number of experts expect a lag in the improving fundamentals within the retail sector. That will be one thing to watch in the coming quarter or two. The airlines are another beneficiary of the lower oil prices. Delta reported better than expected numbers this morning with forecasts of more than $2 billion in fuel savings over 2014 numbers. The savings would've been 70% higher if not for hedges that Delta put on. American Airlines doesn't hedge oil prices. We'll see what their earnings look like next week. One of the main beneficiaries of the improving fundamentals of the airline space is this week's stock of the week, Boeing. Boeing is up 9% since we highlighted the stock back in August. In December the company hiked their dividend 25% while also bumping up their share buyback plan to $12 billion. The news in December proved to be a catalyst for Boeing's stock to break out of its yearlong range between $120 and $135. Investors looking for a defense company benefiting from the drop in oil and the strong demand in the airline industry with a dividend yield of nearly 3% may want to take a look at Boeing. 

Back in October, Boeing beat earnings estimates by 18 cents earning $2.14 a share. Revenues rose 7.5% year over year to $23.78 billion verse estimates of $23.05 billion. The fundamentals continue to improve at Boeing. The backlog increased to a record $490 billion from $440 billion last period with net new orders of $73 billion adding new orders of 501 commercial airplanes. During the quarter, Boeing repurchased 8 million shares for $1 billion. The company issued guidance slightly higher for the rest of the year to $8.10-8.30 a share.  Boeing also reaffirmed commercial airplanes delivery guidance with revenue of $57.5-59.5 billion on 715-725 airplane deliveries. Operating margin guidance is expected to rise modestly to 10.5% from greater than 10%. Boeing also reaffirmed Defense, Space & Security segments with revenue $30-31 billion with operating margins around 9.5%. Two weeks ago Boeing updated their guidance for 2015. Boeing forecasted strong demand for new commercial airplanes in 2015, resulting in about $124 billion in deliveries across the industry, doubling production since 2010.

Even though Boeing's fundamentals continue to improve, the stock has been in a tight range for a little more than a year. Back in August, we highlighted Boeing trading for 14 times earnings, 1 times sales, and generating over $7 billion in operating cash flow a year with a dividend yield of 2.2%. Since then the stock is up 9% yet the stock still trades for 15.2 times earnings, 1 times sales, with a dividend yield of 2.8%. The recent dividend hike was much more than expected. The dividend has increased 88% in the past two years. CEO Jim McNerney indicated that strong operating performance across their businesses continues to generate significant cash flow and financial strength for Boeing. In the next 20 years, Boeing expects business to only improve with air travel doubling again. Eventually Boeing will break out of this recent range to the upside, but in the meantime investors are able to buy a diversified blue chip stock trading below a market multiple with one of the best dividend yields in the S&P 500.