Boeing Co: Can BA Stock Reward Shareholders?
December 15, 2016
Upside for BA Stock?
Boeing Co (NYSE:BA) stock has been through an up-and-down ride in the last few weeks because of recent news.
The first bit of news came in the form of a December 6 tweet from President-elect Donald Trump. “Boeing is building a brand new 747 Air Force One for future presidents,” it read, “but costs are out of control, more than $4 billion. Cancel order!” (Source: “Twitter post,” Donald Trump Twitter account, December 6, 2016, 5:52 a.m.)
Following the tweet’s posting, shares of BA stock traded down more than one percent. However, this was a quick reaction and shares ended up trading back in the green by the end of the day.
According to Jim Corridore, a research analyst with CFRA, it’s possible that costs for the entire Air Force One program can be reduced, but there is “no chance” of the program being cancelled outright. The initial deal was $3.2 billion for two U.S. Air Force One planes, but the new estimate is near $4.0 billion. (Source: “Boeing CEO Calls Trump After Air Force One Criticism,” Fox Business Network, December 7, 2016.)
Even if costs are cut to produce the planes closer to the initial $3.2 billion, it will still boost the bottom line positively. Also note that this project has been in the works since 2009, with the current Air Force One being old and outdated.
After the immediate reaction, investors focused on the fundamentals of the company. Since the tweet by Trump, shares of BA stock have seen a spike up of 3.2%.
The second piece of news was on December 11 and was related to Boeing striking a deal with Iran Air. The agreement is for 80 airplanes, which would amount to $16.6 billion. The first airplanes are expected to be delivered in 2018, which is a quick turnaround. (Source: “Boeing sells 80 jets to Iran Air in biggest U.S.-Iran deal since 1979,” CNN, December 11, 2016.)
The deal is still pending approval from the U.S. government. Should a decision be made before current President Barack Obama leaves office, there is a high probability of getting approval, because the U.S. sanctions regarding Iran were lifted during his term.
Trump has opposed the removal of these sanctions. However, he may have to reconsider and support the deal due to the nearly 100,000 U.S. jobs it will require. During his campaign, Trump’s main message was to grow the economy and keep jobs in the U.S.
The Iran deal adds more to the existing pipeline for BA stock. According to the third-quarter earnings released in October, there were 5,600 airplane orders for the company, which represented a total amount of $462.0 billion. This order pipeline represents 20 quarters of earnings when compared to the third-quarter earnings alone. (Source: “Boeing Reports Third-Quarter Results and Raises Full Year Guidance,” Boeing Co, October 26, 2016.)
Rewarding Shareholders
The last reason why BA stock was in the news was because of a rise in the company’s dividend. Boeing announced on December 12 that the dividend would see an increase of 30%. This is not the first such announcement, with the dividend having gone up annually since 2011.
On a quarterly basis, the dividend is going from $1.09 to $1.42 per share. Based on the current trading price of $155.37, the dividend yield is 3.65%.
In addition to the dividend announcement, it was also revealed that the board of directors had approved a $14.0-billion share repurchase program that replaces that prior one announced last year. (Source: “Boeing Board Raises Dividend, Renews Share Repurchase Authorization,” Boeing Co, December 12, 2016.)
Final Thoughts on BA Stock
The above information contains three pieces of news that impacted BA stock, two positively and one negatively. Even though the negative news came from none other than President-elect Trump, nothing would affect BA stock overnight. Investors sold the stock right away after seeing the tweet, but later realized that it was just noise.
Then, in the coming days, more positive news came out. This is why time and time again, it is important to look at the company as a whole, as well as to be patient.
When it comes to BA stock, management is shareholder-friendly and continuing to work hard to affect the bottom line of the company and investors. This is why BA stock may be worth consideration.
