Military

Earnings Preview: How Boeing Will Make or Break the Dow After Its Report

Jon C. Ogg

Published: January 29, 2019 10:55 am

Last Updated: January 31, 2020 1:24 am

Boeing Co. (NYSE: BA) is expected to report its fourth-quarter results on Wednesday, and it is actually the most important stock in the entire Dow Jones industrial average when it comes to the construction of that index. Boeing also was up over 12% on a year-to-date basis ahead of its key earnings report.

The consensus analyst forecast from Thomson Reuters was $4.58 in earnings per share (EPS) on $26.95 billion in revenue. The larger question is how Boeing views 2019 with ongoing concerns about U.S.-China trade tensions and with a slowing global economy. The consensus estimates of $15.13 EPS and $99.7 billion in revenues for 2018 then jump up to $18.31 per share and almost $107 billion in revenues for 2019.

Boeing has massive exposure to the growing global airplane demand. But given its classification as aerospace and defense, Boeing also has the government contracts for military and space operations from the United States and its allies. Boeing maintained its lead over rival Airbus in initial aircraft orders late in 2018, with a record of more than 800 airplanes delivered. An overwhelming majority of Boeing’s deliveries in 2018 came from the 737 family, accounting for 580 of those deliveries. That’s roughly 72% of all deliveries. The 787 Dreamliner program finished with 145 deliveries for the year.

Boeing is still not entirely insulated from China and is not insulated at all from the global economy. That said, earlier in January, Boeing reported that it had over 900 net plane orders on the books valued at over $143 billion at list prices, after taking in 200 orders in December. And Boeing also has a lot of visibility ahead with a reported backlog of thousands of airplanes that is now standing at seven years.

Because the Dow Jones industrial average is a price-weighted index, and with Boeing now the highest priced Dow stock, it is actually the most important stock when it comes to daily point and percentage move for the Dow. The website IndexArb showed that Boeing had roughly a 10% weighting of the Dow. One comparison here would be that Boeing has the same weighting as the bottom eight components combined (Walgreens, Exxon, DowDuPont, Verizon, Coca-Cola, Intel, Cisco and Pfizer).

Meanwhile, Boeing is a normal calculation when it comes to its weighting the S&P 500 Index, as that index is a market cap weighted index. Boeing’s $208 billion market cap equates to a rank of 23 in the S&P 500.

As noted in our review of all 30 Dow stocks in the 28,000 implied analyst target price for 2019, Boeing has moved far beyond the former boom-bust cycles of the past. Boeing’s stock had pulled back sharply in late 2018 to end the year at $322.50, and it does still have potential exposure to a recent airplane crash. Still, the shares were up a total of more than 9% in 2018, after its 2017 gain of 89% blew out the mere 4% expected by analysts a year earlier. At the end of 2018, Boeing’s trailing price-to-earnings (P/E) ratio was 21.0 and its forward P/E ratio was 17.5.

At the end of 2018, Boeing had a consensus analyst target of $417.60, but that target came down marginally to $415.71 immediately before this critical earnings report. Its year-end price target implied that analysts expected a gain of almost 30% in 2019, and that was without even considering its 2.5% dividend yield. The implied gain now would be closer to 15% due to its shares having risen handily so far in 2019.

Analysts also have been positive on Boeing ahead of the earnings report. Morgan Stanley raised its rating to Overweight from Equal Weight with a whopping $450 price target on January 10. And on that same day Susquehanna started Boeing as Positive with a $388 price target. Merrill Lynch and CFRA (S&P Global) both have $450 price targets as well.

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Boeing’s shares were changing hands around $365 ahead of earnings, and they have a 52-week range of $292.47 to $394.28.

With a 10% weighting in the Dow and having the same weighting as the bottom eight stocks of the Dow, it goes without saying that Boeing shares have the ability to single-handedly exaggerate any upward or downward move in the index.