Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your experience. Save up to 40% More details

China Risk May Disrupt Boeing In The Short-Run, But Long-Term Value Intact

By (Haris Anwar/ MarketsJan 23, 2019 04:15AM ET
China Risk May Disrupt Boeing In The Short-Run, But Long-Term Value Intact
By (Haris Anwar/   |  Jan 23, 2019 04:15AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
  • Reports Q4 2018 results on Wednesday, January 30, before the market open
  • Revenue Expectation: $26.97 billion
  • EPS Expectation: $4.58

BA Weekly 2016-2019
BA Weekly 2016-2019

Based on Boeing's (NYSE:BA) technical chart, it appears investors have unwavering faith in the aviation company's ability to survive in a tough economic environment. After shares had fallen 23% by the end of December, down from the stock's record high of around $394 which BA hit in early October, Boeing is back in the game.

Though last quarter’s market correction proved devastating for many industrial stocks, since hitting the December low Boeing shares have already recovered 19%. Investors awaiting next week's Q4 earnings report expect to see additional evidence of the company’s financial strength.

In our view, the aerospace and defense sectors are one of the few places for investors to hide if we see any clear evidence of a slowdown in economic activity. Should that be the case, Boeing, whose shares closed at $357.90 yesterday, fits the bill.

Though investors have lately traded Boeing as a proxy for the U.S.-China trade war, due to the airplane manufacturer's huge stake in China, we believe slapping retaliatory tariffs on aircraft, or canceling or deferring deliveries, could be a political tit-for-tat measure China will most likely avoid taking.

We don't see this as viable from a business perspective either. Why would China give away its price negotiation power by completely shifting its business to the rival Airbus (PA:AIR)? Currently Beijing procures aircraft mainly for its state-owned airlines and has nearly 400 Boeing orders in the pipeline.

China Risk Too Big to Ignore

In addition, the political cost for such an action from the Trump Administration perspective is also too high. In our view U.S. negotiators won't let things get to the point where China takes this extreme step. That said, the China risk is big for Boeing and investors shouldn't ignore in the short-run.

For example, when the trade war escalated, media reports started surfacing that China had revived discussions with Airbus on an $18 billion order for A320neo narrow-body jets, while Xiamen Airlines, an exclusive Boeing customer for more than 30 years, was exploring a new plane order with Airbus.

So far, Boeing has tried to downplay that risk, via lots of good news it's been able to share with investors. This includes its robust commercial airliner order book for commercial airliners and strong signs of a revival in sales to the defense industry, which have lagged for years.

According to the company’s last communication with analysts, the aerospace company was on track to meet worldwide demand for commercial aircraft. Global passenger traffic rose 6.8% on an annual basis through August of last year, while cargo traffic increased 4% over that period.

Boeing expects to bring in as much as $100 billion in revenue for the entire year, up $1 billion from a previous forecast. Its backlog of orders has risen $17 billion this year to $491 billion, representing some 5,800 commercial aircraft that have yet to be delivered.

During Boeing's last earnings call, the company raised its 2018 profit outlook, saying it expects to earn between $16.90 and $17.10 a share, up from a prior forecast for earnings that was as high as $16.60 a share.

Bottom Line

Despite the China risk, we like Boeing stock for long-term investors. It operates in a global duopoly where the only other competitor is Airbus. This strength is very appealing if you plan to add a company to your portfolio which generates strong cash flows and returns a lot of cash to investors.

During Q3, Boeing generated $4.6 billion of operating cash and repurchased $2.5 billion of Boeing stock. Though its dividend yield looks a bit meager at 2.25%, the potential for return is attractive. Its payout has grown 18% per annum over the past five years, to $8.22 a share.

China Risk May Disrupt Boeing In The Short-Run, But Long-Term Value Intact

Related Articles

China Risk May Disrupt Boeing In The Short-Run, But Long-Term Value Intact

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
Lake Lot
Lake Lot Jan 26, 2019 8:19PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Adding now is too late
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email