Why Boeing Stock Surged Nearly 20% in January

The aviation giant is firing on all cylinders as it prepares to ramp airplane production and launch a new aircraft.

Lee Samaha
Lee Samaha
Feb 6, 2019 at 5:05PM

What happened

Shares of Boeing (NYSE:BA) rose 19.6% in January, according to data provided by S&P Global Market Intelligence. While Boeing stock participated in the general market rally, it notably outperformed the S&P 500 (up 7.9%), particularly after the company's release of fourth-quarter earnings on the penultimate day of the month.

The earnings report saw Boeing exceeding the guidance it gave as recently as October. Full-year revenue increased 8% to $101.1 billion, compared to guidance of $98 billion to $100 billion. Core EPS soared 30% to $16.01, compared to guidance of $14.90 to $15.10.

A Boeing 737 in flight.

Image source: Getty Images.

So what

The results are a demonstration of Boeing's positive earnings momentum. In a nutshell, strong airplane orders are driving production growth, which is driving margin and earnings improvement. The company plans to increase the production rate on the 737 to 57 a month in 2019 from 52 a month in 2018, and the 787 to 14 a month from 12 a month in 2018.

Meanwhile, productivity enhancements like cutting supply chain costs are also helping Boeing Commercial Airplanes (the segment responsible for two-thirds of the company's earnings) increase operating margin to 13% from 9.4% in 2017. Meanwhile, Boeing Global Services (21% of earnings) increased full-year revenue by 17% and earnings by 12%, with management seeking to expand its footprint in aftermarket/services.

Consequently, core operating earnings jumped 20% in 2018, and management's guidance for 2019 calls for core EPS to grow 24%-26% to $19.90-$20.10 -- a range above the analyst consensus estimate of $18.31.

Check out the latest Boeing earnings call transcript.

Now what

Boeing is set for another busy year. There's the production ramp on the 737 and 787, and given that management expects an uptick in demand for wide-body aircraft at the start of the next decade, it's reasonable to expect a pickup in orders on the 777X, the new version of the 777 that the company expects to start producing in 2020. In addition, investors can expect margin expansion at Boeing Commercial Airplanes and further double-digit revenue growth at Boeing Global Services.

Provided the commercial aviation market stays in growth mode, and there aren't any supply chain issues during the 737 production ramp, Boeing investors can expect another strong year for the company.