Boeing Co.’s (BA, Financial) upward momentum started in February 2016 after reaching its three-year low. Shares of the aircraft manufacturing company, though, continue moving upward at an even stronger rate this year. It has been one of the best-performing large-cap stocks this year with shares up nearly 48% year to date.
Boeing reported healthy second-quarter results. For the quarter, the company shared earnings per share of $2.55, beating the analysts’ estimate by a wide margin of 25 cents. On the other hand, its revenue came in at $22.47 billion, missing the consensus by $280 million. Also, that figure represents a drop of 8.2% year over year.
Moving onward, the company hiked its forecast for the full year, sending shares of the stock up more than 9% in a single trading session and making it the biggest mover on the Dow Jones Industrial Average. Despite missing revenue estimates, the profitability of the company’s 787 Dreamliner helped in producing robust cash flow during the quarter.
The aircraft manufacturer generated nearly $4.5 billion in cash from operations, slightly less than twice analysts’ estimate of around $2.5 billion. The additional cash helped the company add $1.5 billion to its 2017 operating cash flow forecast, now approximately $12.25 billion.
In 2016, the aircraft manufacturer was not even able to break even on the Dreamliner variants. Since then, the delivery mix has moved further toward the highly profitable 787-9 model while production efficiency carries on rising at a healthy rate.
In all, the aircraft manufacturer is now producing robust cash profits on the 787 family. Moreover, the company’s Dreamliner profitability is poised to grow even further in the future. Most important, the company likely will start delivering new and more profitable 787-10 models next year.
The company also said that it is now aggressively focusing on reducing capital expenditures, something analysts have been watching closely. It is streamlining production, decreasing payrolls and winding down development costs. Furthermore, most of the aircraft manufacturer’s largest investments for this year are already out of the way.
On the other hand, the company bought back a massive amount of shares worth $2.5 billion in the most recent quarter. Also, it paid $900 million in dividends. The overall shareholder payout was thus $3.4 billion, which sums up to $13.6 billion on a yearly basis.
Although Boeing has $10.8 billion in long-term debt, it has plenty of cash to repay its debt installments on time. Moreover, the company’s strong free cash flow will also help it buy back more shares, make acquisitions or surge its capital expenditures in the future.
Summing up
Boeing recently launched its new 737 MAX 10 airplane at the Paris Air Show which helped it outstrip its chief rival Airbus (FRA:AIR, Financial). The aircraft manufacturer’s cash flow will reinforce further as 737 MAX 10 deliveries ramp up through the next three years. Also, its Dreamliner profitability carries on improving at a healthy rate.
The company’s aggressive focus on reducing capital expenses as well as increasing profits and cash along with its continuing massive shareholder returns make its shares striking. With the increasing share price, though, its price-earnings (P/E) ratio has also increased sharply.
The stock currently trades at a P/E ratio of 26, suggesting it is slightly expensive at the current level. Since the company’s valuation is not low any longer, the upside could be limited in the short term. Apart from this, the stock offers a forward dividend yield of 2.67%, which is highly appealing.
Although the stock currently trades at its fresh all-time high, long-term shareholders should continue holding it as its growth prospects look healthy.
Disclosure: No position in the stocks mentioned in this article.
