Worries about the economic slowdown in China have led to some turbulence on Wall Street this year. But aerospace and defense giant Boeing has had no problem navigating the choppy skies so far in 2019.
Shares of Boeing (BA) are up nearly 13% year-to-date. That makes it the third best performer in the Dow, trailing only Goldman Sachs (GS) and IBM (IBM).
But will Boeing still be doing well after it reports fourth quarter results Wednesday morning? Many on Wall Street are optimistic, despite China concerns.
Analysts are forecasting a nearly 50% jump in earnings for the quarter from a year ago. And there’s a chance that Boeing’s annual revenue could crack the $100 billion level for the first time ever. Wall Street’s consensus forecast is for sales of $99.7 billion.
Boeing, which said in November that it had delivered itstwo-thousandth airplane to a Chinese carrier, clearly has something to lose if China’s economy slows further, or if trade tensions with United States intensify.
But CEO Dennis Muilenburg was optimistic that Boeing will still be able to benefit from healthy demand from Chinese airlines for the foreseeable future.
“Over the next 20 years, we see a world that needs 43,000 new airplanes, about 7,700 of those are in China,” Muilenburg said during the company’s last earnings call in October. “Traffic growth patterns are very strong in China and the rising middle-class population is a tremendous driver there.”
Huge demand for new 737 MAX jets
Boeing’s airplane unit is booming not just in China, but around the world.Many global carriers are upgrading their fleets. Japan’s ANA Holdings (ALNPY) announced Tuesday that it was ordering 30 new Boeing 737 MAX 8 planes, for example.
And United Technologies (UTX), the owner of the Pratt & Whitney jet engine and Collins Aerospace businesses, reported strong earnings last week due in part to solid demand from Boeing.
Boeing announced earlier this year that it delivered 806 new planes last year, and 238 of them were in the fourth quarter. That was an increase of nearly 15% from a year ago and it set a new record for fourth quarter deliveries.
“These impressive numbers keep Boeing the world’s biggest plane maker for a seventh straight year. Boeing’s success means they are taking market share away from main competitor Airbus,” said Tom McIntyre,president of McIntyre, Freedman & Flynn Investment Advisers in a report.
Boeing’s strength in the aircraft business is key to the company’s success, as the aviation unit accounts for about 60% of its overall revenue.
Boeing to benefit from global increase in defense spending
One money manager said analysts shouldn’t overlook Boeing’s big defense unit. It makes up nearly a quarter of Boeing’s sales. (The remainder of Boeing’s revenue comes from its services and financing businesses.)
Wayne Wicker, chief investment officer with Vantagepoint Investment Advisers, told CNN Business that global defense spending will likely continue to rise.
He cited the recent decision by NATO members to boost defense spending by $100 billion following pressure from President Donald Trump.
“Regardless of where we are in the economic cycle, there are still major security concerns around the world,” Wicker said.
That should benefit Boeing and other defense contractors. To that end, Lockheed Martin (LMT) reported quarterly sales Tuesday that beat analysts’ forecasts. The stock rose on the news.
