Often times, examining the results of related companies can offer clues as to the performance of the company in question. Insight can be gleaned on the state of the industry and the economy as a whole. Recently, I decided to take a look at both Alcoa (NYSE:AA) and General Electric (NYSE:GE) in order to determine how Boeing (NYSE:BA) will fair when they report earnings on January 27th.
First off, Alcoa is a major supplier of aluminum fasteners and rings to the aerospace industry. Recently, Alcoa obtained a contract valued at more than $2.5 billion to supply Boeing with these products for years to come. Naturally, Alcoa is a great company to examine if you have an interest in Boeing. When Alcoa reported earnings on January 11th, aerospace revenue came in at a very healthy 7% year over year increase. In addition, guidance was provided for the aerospace business in 2016. Alcoa expects their aerospace division to grow revenue at rate of 8-9% going forward "…on continued robust demand for large commercial aircraft and jet engines." If there's any chance of a slowdown in demand, Alcoa isn't seeing any signs. It seems that, contrary to what Delta CEO Richard Anderson thinks, demand is more than outweighing supply.
In addition to Alcoa, I was very interested to see how General Electric's aerospace division would perform when they reported earnings on January 22nd. GE supplies Boeing with engines for many of their top selling aircraft, including the 777 and 787. I was very happy to see aviation revenue at GE increase by 5% over the 4th quarter of 2014. Considering many of GE's other businesses performed quite poorly, with negative year over year revenue growth, aviation was a welcoming bright spot. This bodes extremely well for Boeing. After seeing this report, it was easy for me to form my stance.
Overall, considering both Alcoa and GE's strong performance in their aerospace and aviation divisions, I expect Boeing to report another solid quarter. No doubt, money can be made in Boeing at these levels and I expect a pop in BA stock after earnings.
Disclosure: I am/we are long BA.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am a portfolio manager in the Syracuse University Investment Club, which may initiate a position in the near future.