Boeing Stock Analysis: Is It Time To Book Profits?

  • Boeing has recently lost big contracts that could have been catalysts for growth.
  • Boeing remains strong in the commercial sector but the 787 is not yet profitable.
  • Boeing is not the fast-growing company some might think it is.

War is all hell, unless you’re a defense contractor.

The fact is that war means business for those who make the weapons of war. It means lost equipment must be replaced. It means new orders, not just for the current line-up but for older gear compatible with what customers in other nations already have.

The conflict with Syria, and escalating tensions following the attacks in Paris, have Boeing (NYSE:BA) stock on fire despite a distinct lack of results otherwise. Since late September it is up nearly 16%, and it’s now within $10 of its all-time high of $158.31, achieved in February.

BA stock chart

Source: Boeing stock price data by amigobulls.com

This has occurred despite what should be considered a raft of bad news:

  • Boeing has delivered the very last C-17 cargo plane, a huge craft and a huge profit-maker over many years.
  • Boeing failed to win an $80 billion contract for new stealth bombers.
  • Boeing has dropped its bid to supply new NASA delivery vehicles

It’s true that the company’s 787 Dreamliner has been drawing strong reviews but it is not yet profitable. Boeing has two new planes due out in the next few years, the 777X and 737 Max, and there are a large number of airlines in the developing world anxious to order them. But these are commercial orders, not military orders, and these kinds of orders can go in other directions.

Besides, the recent gains in the stock are being shared with other defense contractors, like Northrop Grumman (NYSE:NOC) and Lockheed Martin (NYSE:LMT). If Boeing doesn’t start winning some contracts all it will have will be re-supply work. And its failures may start to be discovered by investors, who will then seek out these other names.

When you examine the books, you don’t see a fast-growing, high-margin business. Revenues have been growing at less than 4% per year, with margins pretty steady at about 6%. That growth should accelerate slightly for 2015, as the company has already booked $72 billion in business for the first three quarters, against last year’s total of $90 billion. But we’re talking about justifying some big gains – will the growth deliver on expectations?

I have personally been accumulating Boeing shares since March of 2014. I show a gain of about 15% on my position, and since I bought at under $130 my yield is a bit higher than the 2.45% you’d get if you bought now. Nice, but not spectacular.

Compared with some other stocks in my portfolio it's a nice gain, but nothing outstanding, and I’m looking for a catalyst – some big order or gain – to supplement the position. If I don’t see one within six months I may well be taking profits, and the recent action is encouraging me to consider doing so sooner rather than later.

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Author's Disclosures & Disclaimers:
  • I am not an investment advisor, and my opinion should not be treated as investment advice.
  • I am not being compensated for this post (except possibly by Amigobulls).
  • I do not have any business relationship with the companies mentioned in this post.
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Amigobulls does not have any business relationship with any of the companies covered in this post. This post represents the views of the author/contributor and may not reflect the views of Amigobulls.

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