Despite a recent decline, shares of The Boeing Company (NYSE:BA) are up 13.8% in the first six months of 2018, according to data from S&P Global Market Intelligence. It's an excellent return in itself, but all the more notable considering the weakness in industrial sector stocks this year.
There isn't one single catalyst for the move; it's more of an all-around improvement in the company's growth prospects. Highlights include:
- The Boeing 737 production ramp (from 47 a month in 2017 to 52 a month in 2018) is progressing as planned.
- Full-year 2018 earnings, cash flow, and Boeing Commercial Airplanes (BCA) margin guidance were all increased on the first-quarter earnings presentations.
- The 787 Dreamliner generated 83 net orders in the year to the end of May -- supporting management's decision to increase production to 14 a month in 2019.
- Boeing made inroads on its plans to muscle in on its suppliers by signing a deal to partner with Safran to develop auxiliary power units and agreeing to acquire aerospace parts company KLX for $3.2 billion.
Bearing in mind that some of the positive events in the last six months have strategic significance (ramping production on the 737 and moving in on suppliers' markets) it's fair to say that the developments are a long-term positive for investors.
Moreover, ongoing strength in Boeing's order book is the catalyst for the production ramps that should lead to cuts in unit production costs. In plain English, this means Boeing tends to make more money per aircraft as it produces more planes -- so new orders help the company to improve margin. In addition, as Boeing ramps production it can reduce the expected lead time that an airline has to wait for an order to be delivered -- in turn this encourages more orders.
In the next few years, Boeing's main developmental aims will be to dominate the aviation industry by capturing the expected increase in wide-body aircraft demand -- notably with its new 777X aircraft and ongoing orders of the 787 -- at the start of the next decade.
Moreover, CEO Dennis Muilenburg believes he can eventually get BCA margin up in the mid-teens from around 11.5% in 2018, partly by pressuring suppliers and improving supply chain efficiencies.
So far in 2018, Boeing is delivering on its aims and provided the global economy stays healthy and passenger traffic continues to grow, then the aviation giant should have a lot to offer investors in the coming years.