The post earnings decline of $10 has given us a buying opportunity for Boeing. This stock was the biggest gainer on the Dow in 2017 and it is not likely to slow down.
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BA - Boeing - Company Profile
The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sells, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. It operates in five segments: Commercial Airplanes, Boeing Military Aircraft, Network & Space Systems, Global Services & Support, and Boeing Capital. The Commercial Airplanes segment develops, produces, and markets commercial jet aircraft for various passenger and cargo requirements; and provides related support services to the commercial airline industry. This segment also offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, and technical advice to commercial and government customers. The Boeing Military Aircraft segment researches, develops, produces, and modifies manned and unmanned military aircraft, and weapons systems for global strike, vertical lift, and autonomous systems, as well as mobility, surveillance, and engagement. The Network & Space Systems segment researches, develops, produces, and modifies strategic defense and intelligence systems, satellite systems, and space exploration products. The Global Services & Support segment provides integrated logistics services comprising supply chain management and engineering support; maintenance, modification, and upgrades for aircraft; and training systems and government services that include pilot and maintenance training. The Boeing Capital segment offers financing services and manages financing exposure for a portfolio of equipment under operating and finance leases, notes and other receivables, assets held for sale or re-lease, and investments. The company was founded in 1916 and is headquartered in Chicago, Illinois. Company description from FinViz.com.
Business is booming. Boeing finalized a $13.8 billion order with Singapore Airlines last week. The order is for (20) 777-9 and (19) 787-10 planes. The rumor that will never die surfaced again and that being an Amazon order for (100) 767 freighters. This first appeared in March and keeps resurfacing. Amazon's leases for its current (40) 767 freighters do not expire until 2023. That means there is no rush to order more since it would take years for Boeing to make them but still deliver before 2023. There is another rumor that surfaced last week that Amazon is shopping for financing/lease arrangements for (400) 767s to be delivered over the next ten years. Boeing went to its managers and workers last week to see what would be needed to "significantly" boost production rates for a large and important customer. Boeing is rumored to be looking at a doubling of the production rate. They currently produce (2) 767s per month and they are planning on raising this to 4 per month from January 2020 through January 2021 then slowly scale back to 2 per month by 2025. This would seem to indicate a 40-60 plane order from a single customer for delivery in 2021. Shares closed at a new high.
Boeing got another windfall when Trump was elected and suddenly took an interest in producing more F-18 Hornet's than F-35s. Boeing was only expected to produce 5 Hornets this year with a big order for F18 Growlers filling out the production line. The Growlers are the radar jamming planes that protect a flight of fighters. In the budget that was just passed, an additional $1.1 billion was allocated for 14 additional F-18s in this year. Trump had asked for 24 but Congress only approved 14. There will be a lot more in the budget for 2018. The F-18 is the workhorse of the Navy and many of their older planes are reaching the 6,000 flight hour maximum threshold. That means the Navy will need hundreds over the next several years to replace the aging aircraft. Boeing expects the production line to increase to 3-4 per month starting in 2020. Boeing expects another 100 planes to be ordered over the next five budget cycles and possibly more as the military scales down requests for F-35s in favor of the much cheaper F-18s. Boeing has an enhancement called Block III that basically gives the F-18 the networking capability of the F-35. They envision a stealthy F-35 entering hostile airspace and doing reconnaissance and then transmitting back threat and target information to the heavily armed F-18s to actually carry out the attacks. Over the last five years, the Navy has requested five times as many F-18s as F-35s. A F-18 costs $75 million and F-35 $121 million.
Boeing said on any given day 2 out of every three F-18 planes are out of commission waiting for repairs. Planes have been flown hard in the post 9/11 world with multiple theaters of war and planes down for a single part end up getting cannibalized for other parts to keep the remaining planes flying.
All of this means Boeing is going to remain highly profitable for a very long time and this is just two production lines of the dozens of products being manufactured by the company.
Boeing recently upgraded their forecast for plane demand from China. The company now predicts China will buy 7,240 planes, up from 6,810 in the prior forecast. The value of these planes will be more than $1.1 trillion. The period covered is 2016 to 2036. China is expected to be 20% of the global demand for aircraft over the next 20 years. Boeing said the rapidly growing middle class and the continued economic growth in China would fuel the growth of airline travel.
Boeing raised its 20 year target on deliveries to Southeast Asia by 460 planes saying demand should exceed 4,210 new planes worth $650 billion. Boeing said Southeast Asia was the fastest growing market in the world and 10% of the global market.
Boeing reported a 7.4% rise in Q3 deliveries due to the high demand for the 737 jetliners. Boeing delivered 202 planes in Q3 compared to 188 in the year ago quarter. Of that total 145 were 737s, up from 120 last year. The 787 Dreamliners slipped 1 to 35 and 777s fell from 22 to 16. Boeing has delivered 554 planes in 2017 and expects to deliver 760-765 for the year. They received 127 new orders in Q3.
For Q3 they reported earnings of $2.72 per share that beat estimates by 7 cents. Revenue was $24.31 billion, which also beat estimates. They guided for the full year for earnings of $9.90-$10.10, ten cents higher than prior guidance. They repurchased $2.5 billion in shares in Q3. Their order backlog is $474 billion for nearly 5,700 commercial planes.
The Commerce Department said orders for commercial aircraft surged 30% in September.
Shares declined with the Dow after earnings. Since they are up roughly 80% for the year, it is understandable they needed to rest. There is support at $253 and again at $234. If the Dow declines next week I would like to enter this position on a touch of initial support.
With a BA trade at $253.00
Buy Dec $260 call, estimated premium $3.50, initial stop loss $248.50.
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