Aerospace & Defense

Boeing Becomes America's Hot Stock

Boeing Co. (NYSE: BA) is the world’s largest commercial aircraft maker and among the biggest defense contractors in the world. It is also an old-style manufacturing company with tens of thousands of workers located in factories both inside the United States and outside. It is an odd candidate to be the hottest stock among large American companies. However, its value is up over 25% this year, handily outpacing any other member of the Dow Jones industrial average.

Many analysts believed Boeing would be in deep trouble this year. The trade war with China could cap Boeing’s sales in what is quickly becoming the world’s largest consumer airline market. Friction with NATO might slow the purchase of Boeing weapons by EU member nations. Frictions with the Saudi government might do the same. However, the Trump administration problems with the People’s Republic have not spilled over into aircraft purchases, and the long list of items which may receive higher tariffs has not meaningfully touched Boeing planes. In the meantime, there have been no canceled orders of Boeing military products, either by the Europeans or the Saudis.

One of Boeing’s strengths is the massive breadth of its defense products, which is not matched by any other company. According to 24/7 Wall St., Boeing is the second largest defense contractor in the world, with arms sales of $30 billion in 2016. 24/7 editors pointed out that Chicago-based aeronautics company Boeing reported $29.5 billion in arms sales in 2016, the most of any company in the world, after only Lockheed Martin. The U.S. Navy, Air Force and Marines — in addition to allies abroad — rely on long-range munitions from Boeing’s Harpoon Weapon System. Boeing also manufactures and sells such fixtures in the U.S. arsenal as the Apache attack helicopter, the Chinook transport helicopter, the B-52 bomber and the F-15 Eagle and F/A-18 Super Hornet fighter jets.

Boeing’s earnings are the best marker of its progress. Revenue rose 8% last year to $101.2 billion. The number was an all-time record. Net earnings were up 24% to $10.5 billion. Deliveries of commercial aircraft rose 6% to 806. For 2019, Boeing expects that number to be between 895 and 905.

Among Boeing’s largest advantages is its “moat.” Only one other company in the world, Airbus, has had the tens of billions of dollars necessary to field the levels of R&D, manufacturing facilities, skilled employees and carrier relationships to be in the commercial aircraft sector. The industry worldwide is a duopoly. While some nations, including Russia and China, have relatively small commercial aircraft businesses of their own, none can field a line of airplanes that runs from $400 million wide-bodies that seat over 300 people to $150 million planes that carry 150 people for short hauls among hundreds of cities around the world. And Boeing has performed better in terms of both deliveries and revenue compared to rival Airbus.

Boeing’s shares do not show any sign of fatigue. A rally that started in mid-December has not been broken. And Boeing’s guidance for 2019 forecasts another strong year.