Despite beating fiscal 2018 second-quarter earnings and revenue estimate of analysts, the stock of Boeing Company (NYSE: BA) initially lost more than $10 yesterday, but later closed at $355.92. Lower-than-expected commercial aircraft revenue and FY18 EPS outlook sparked a sell-off. However, considering the strong earnings and order backlog, we anticipate the stock to bounce back in the upcoming trading sessions.
The Chicago, Illinois-based company reported 2Q18 revenues of $24.26 billion, up 5% from $23.05 billion in the similar quarter of fiscal 2017. Higher commercial aircraft deliveries, the right mix of aircraft, and growth in defense volume and services contributed to a rise in revenue. Analysts had expected Boeing to post revenues of $24.04 billion for the second quarter.
For the quarter ended June 2018, net earnings grew 26% to $2.20 billion, from $1.75 billion last year. Correspondingly, on a per-share basis, earnings increased to $3.73 from $2.87 in the prior-year period.
Boeing took a $307 million charge “related to cost growth on the KC-46 Tanker” as the company aims to get the aircraft certified by Air Force by October.
Excluding charges, core earnings for Q2 2018 increased to $3.33 per share, from $2.49 per share. Analysts surveyed by Thomson Reuters anticipated Boeing to post earnings of $3.26 per share.
Commercial Airplanes revenue was $14.48 billion in the second quarter, compared with $14.28 billion in the year-ago period. The reported revenue missed the FactSet estimate by $350 million.
Boeing delivered 194 commercial airplanes in the quarter. The company delivered 737 MAX airplanes to Ethiopian Airlines, Xiamen Airlines, and Jet Airways to name a few. The 737 MAX program also celebrated its first anniversary of joining revenue flight service. Boeing stated that the aircraft continues to receive good reception in the market. Presently, the aircraft manufacturer has 4,600 orders for the aircraft. Similarly, the 777X program is moving forward as per schedule, with the first phase of delivery expected to start in 2020. The company revealed that the production of the first two test aircraft has begun.
Defense, Space & Security revenues increased to $5.59 billion, from $5.14 billion last year. The growth was mainly driven by F/A-18.
Boeing Global Services, which completed its first year of operation, recorded a 15% rise in revenue to $4.09 billion. Furthermore, the company raised its revenue outlook for the division to a range of between $15.50 billion and $16 billion, up from its earlier view of $15 billion to $15.50 billion.
For FY18, Boeing still anticipates posting earnings in the range of $16.40 to $16.60 per share, and core earnings of between $14.30 and $14.50 per share. The Street analysts anticipate earnings of $14.56 per share. This was a disappointment to the market, leading to the selloff.
However, the company raised its FY18 revenue outlook by $1 billion to a range of $97 billion – $99 billion. The Wall Street analysts expect revenue of $98 billion for fiscal 2018. Boeing also raised the commercial aircraft margin to greater than 11.5%. Additionally, Boeing reaffirmed its cash flow guidance range of $15 billion to $15.50 billion.
Boeing slashed its FY18 operating margin for its defense, space and security division to a range of 10%-10.5%, from the prior outlook of 11%. However, the margin guidance is still higher than the 2Q18 operating margin of 9.3%.
The aircraft manufacturer still aims to deliver a record 810 aircrafts in FY18. During the first half of 2018, the company managed to deliver 378 aircraft. Overall net orders for commercial aircraft were 239 during Q2 2018. At the end of the second quarter, the backlog stood at 5,900 airplanes, valued at about $416 billion.
The company has been expanding its aircraft range in a steady manner. In this regard, Boeing has acquired a controlling stake in Brazil’s Embraer by investing about $5 billion. The deal is expected to make Boeing the largest player in passenger jets in that region. The company is also nearing the launch of 797 aircraft. During the Farnborough International Airshow, Boeing obtained about $100 billion worth of new orders. Therefore, strong 2Q18 earnings, impressive backlog and raise in FY18 revenue outlook are expected to turn the stock of Boeing bullish in the short-term.
Technically, the stock is trading above the major support level at 345. Furthermore, both MACD histogram reading and Chaikin money flow indicator is in the positive region. Therefore, we are anticipating a bullish reversal in the next few days.
On the basis of this analysis, we are planning to invest in a call option, which does not expire before August 4th. Before investing our surplus funds in the binary broker’s platform, we will make sure that the stock of Boeing is trading at about $355 in the equity market.
Disclaimer: Any financial trading analysis offered here is our opinion and is not intended as advice or direction for investors. We cannot guarantee the success of any trades made as a consequence of this article, and we encourage traders to incorporate a strong money management strategy to limit losses when they enter the markets. Please use this article as part of your own research before formulating strategies prior to trading.
