Aerospace & Defense

2018 Bull/Bear Outlook: Can Boeing Repeat Its Blowout 2017 Performance?

Now that 2017 is gone and 2018 is here, investors have to contemplate what to expect ahead. After all, this raging bull market is now nearing nine years old, and it has been the strongest bull market that most investors have ever seen. The Dow Jones Industrial Average (DJIA) rose 25% and the S&P 500 rose almost 19.5% in 2017. Wall Street is by and large calling for tax reform, earnings growth and higher gross domestic product growth to continue the stock market gains in 2018.

24/7 Wall St. just came out with its annualized forecasting tool showing that DJIA 26,400 and at least 2,855 on the S&P 500 are the baseline targets for 2018. For the Dow to make its targets, Boeing Co. (NYSE: BA) is going to have to do its part.

As far as what other strategists are calling for in the broader market, Credit Suisse is now targeting 3,000 and Oppenheimer is targeting 2,900 for the S&P 500 in 2018. At the end of 2017, the forward valuation for the S&P 500 Index was 18.5 times earnings to 19.0 times expected earnings per share according to two main sources.

Boeing was the DJIA’s best-performing stock of 2017 with a share price increase of 89.4%, 20 points higher than the second-best performer and nearly double the third-best. The stock closed 2017 at $294.91, above the 12-month consensus price target of $292.83. Boeing raised its annual dividend to $6.84 in December, a 20% boost on top of a 30% boost a year earlier.

Investors who stuck with Boeing for the full 2017 calendar year received a total return of nearly 91%, and the company didn’t even have to add “blockchain” to its name. Only a hopeless Pollyanna would expect Boeing to duplicate its 2017 performance in the new year, but analysts don’t seem to believe that performance will fall all that much. The company’s forward price-earnings (P/E) ratio of 26.88 remains quite optimistic, although it is lower than the company’s trailing 12 month P/E of 27.44.

Boeing closed 2017 with net new orders of more than 850 and operating cash flow north of $12 billion. When the company reports earnings later this month, it is expected to report total commercial jet sales of around 760. With a ratio of new orders to sales (the book-to-bill) greater than one, Boeing has strengthened a backlog that will carry it through the next decade.

The company is considering whether to launch a new commercial jet to fit into the gap between the 737 and the 787. Among the considerations is whether to go with a clean-sheet design that would be leveraged later when the company finally decides to replace the 737. That is essentially what Boeing did with the 787, and development for that plane went horribly over budget and took much longer to get in the air than planned. Boeing has to avoid a repeat of that scenario.

The company’s 52-week trading range is $156.67 to $299.33 and its market cap of $177.36 billion is the largest of any U.S. industrial firm. At 8.23%, it is currently the most heavily weighted on all the equities in the DJIA and ranks 28th among the S&P 500 measured by market cap.

As far as how investors should be positioned for 2018, there are at least some risks and hurdles that should be given some thought. We have offered up 10 serious risks to the bull market in 2018. Investors might want to also consider lower volatility strategies in case a big correction looks more likely.

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