A lot of investors would find recent headlines about The Boeing Co. (NYSE: BA) very confusing.
But we’re not most people. Here at Strategic Tech Investor, we know the value of focusing on the long-term horizon.
And if ever there was a textbook example of this, it’s Boeing.
On Nov. 19, the global leader announced a deal to sell up to 50 jetliners worth $5.9 billion to a Korean airline.
But the stock tanked that day, falling 4.5%. I believe this had to do with two main factors.
- The market has recently clipped the value of big-cap leaders.
- Boeing got a lot of bad press after an Oct. 29 fatal crash of one of its new 737s.
But today, I’m going to show you why you need to look beyond the bad press to see why Boeing will once again be a market-crushing stock.
Check it out…
A Tragic Crash
I want to clear one thing up right off the bat: I’m in no way making light of the Lion Air plane crash that killed 189 people when the Indonesian passenger jet crashed into the Java Sea 13 minutes after takeoff.
As you might expect – and what is scaring many on Wall Street – Boeing is facing wrongful-death lawsuits, with at least one already filed.
This fear is aggravated by the fact The Wall Street Journal reported that flawed sensor readings may have led to the crash.
In some cases where the pilots are flying manually, the false reading means the plane’s computers will try to push the plane down, even though the pilots are frantically trying to pull the plane up.
Investigators have said this is what they believe happened with this tragic plane crash.
But here’s what everyone is missing… Despite this crash, the industry still has great faith in Boeing, and this new version of the 737 in particular.
A Very Large Order
I say that because the Nov. 19 order from Korean carrier Jeju Air was for 40 737-Max 8s, the very aircraft involved in the Indonesian crash. Boeing notes that this is the largest order ever received from a Korean low-cost carrier, adding the deal could include the sale of 10 more planes.
Again, I’m not making light of the crash. However, the 737 has been in service for decades. Data compiled by AirSafe.com shows that various versions of this model have been involved in 77 crashes since 1972.
Most of those occurred overseas, where air travel is not as heavily regulated as it is here in the United States, and few involved a major number of fatalities.
More to the point, despite the negative publicity to Boeing when a crash occurs, the company has remained the world’s largest maker of civilian jet aircraft, with a growing pipeline of orders – totaling trillions – going out for many years.
And Boeing is particularly well-suited for the future of air travel. See, with China as the leader, Asia is set to become the world’s top travel spot.
EuroMonitor International says that by 2030, international arrivals will have risen by 1 billion. That would be on top of the expected 1.4 billion trips for this year.
By that time, China is expected to have overtaken France to become the world’s top travel destination. For several years now, Boeing has been making a big push into China and the rest of Asia.
Every summer, Boeing releases an updated view of the long-term demand for its aircraft. It comes after deep discussions with key clients and a thorough analysis of economic trends.
In its latest forecast, Boeing boosted its outlook and now says that 41,030 planes, worth $6.1 trillion, will need to be built over the next two decades to meet demand.
Asia will by far be the largest market. Boeing forecasts that more than one-third of its planes will be built for use in that region. The roughly 16,050 aircraft to be delivered there are just 120 shy of the total for Europe and North America combined.
For Boeing, surging global demand, and the order backlog it creates, brings a pair of powerful strengths.
- The firm can keep its massive factories humming with a large and steady backlog. That’s a very profitable way to operate.
- With a large backlog in hand, Boeing has little incentive to pursue discount pricing.
And the pricing on these planes is impressive. For example, Boeing sees demand for more than 30,000 single-aisle planes, known as the 737, with an average price tag of $117 million. Over the next two decades, Boeing anticipates $3.5 trillion in demand for such planes.
And for the more than 3,000 medium and large planes, such as the Boeing 787 Dreamliner, pricing per plane soars to just under $400 million, according to Statista.com.
Don’t forget that around 1,000 new freighters will be added to fleets in coming years to handle the surge in global trade.
Moreover, servicing all those new planes brings a secondary income stream to Boeing. The firm predicts that maintenance and engineering services will generate another $8.8 trillion in revenue over the next 20 years.
These are some hefty sums for Boeing and rival Airbus SE (OTC: EADSY) to divvy up.
Don’t forget that Boeing also ranks as one of the Pentagon’s top suppliers. Recent agreements in Washington call for military spending to rise to $716 billion in 2019, up $76 billion from 2017 levels.
The firm’s Defense, Space & Security division is a leading provider of jet fighters, helicopters, and autonomous airborne vehicles (drones). This division has brought in an average of $14 billion in sales over the past five years.
Now, an uptick in orders has Boeing building defense gear at a $20 billion clip each year. For example, in September, it inked a $9.2 billion deal to build the T-X Advanced Pilot Trainer and ground-based training systems for the Pentagon.
Boeing also is a big play on avionics, the complex electronic systems that run aircraft. For example, an October 2017 purchase of Aurora Flight Sciences Corp. will help Boeing to build autonomous systems that allow military and commercial aircraft to be flown remotely.
With so many great platforms, it’s no wonder Boeing had a blowout first quarter. Earnings of $4.07 a share jumped well ahead of the $3.93 Wall Street forecast.
Boeing is becoming even more efficient, too. And that means it’s now making more profit on every aircraft it sells.
In 2016, Boeing generated $7.47 in adjusted earnings. By 2020, look for that figure to soar to $17.2 billion. Those kinds of numbers are helping to underpin massive share buybacks, and 15% to 20% yearly increases in its dividend.
Thanks to the current choppy market, shares of Boeing have moved well below their recent peaks and offer a fresh opportunity. I am projecting shares to double over the next four years, based on the recent trend of 21% yearly growth in profits.
Well beyond that near-term view, Boeing is clearly built to deliver robust gains over the long haul.
— Michael Robinson