Boeing: Never Thought I'd Say This

| About: The Boeing (BA)

Summary

Boeing has nearly doubled since I first covered it and is up 50% since I purchased the name in 2015.

Q4 earnings are out and I discuss the key metrics in addition to expectations for 2017.

In light of these results I find myself set to sell.

The Boeing Company (NYSE:BA) is a premier blue chip name and I got into it a year ago in December 2015. This was as the company raised its dividend and expanded its buyback. The company just raised its dividend again, which is phenomenal for shareholders, but the stock continues to march ahead strongly. But with shares at such a premium versus just a few months ago, where do we stand? Is this justifiable? Well to answer this question, we need to consider where the stock is going. To have an understanding of where it is going, we have to review the company's performance but also discuss where the company is heading, independent of any news items which seem to impact shares short-term each week.

Boeing just reported its Q4 results. It was another stellar quarter. Do not fear, the company delivered a top and bottom line beat and issued strong guidance. It was not the best quarter on all metrics, but it was a strong quarter overall. The company reported revenue of $23.29 billion in the quarter, surpassing estimates by $100 million but these did fall 1.2% year-over-year. Core earnings per share for the quarter were strong and came in at $27. This was a clear beat of $0.12 against analyst estimates. However, these are just the headline numbers and we need to dig deeper.

To understand where the company is doing well let's take a look at some of the sector highlights to get a feel for the performance. The Commercial Airplanes segment saw fourth quarter revenue improve 2% to $16.2 billion on higher delivery volume and an improved sales mix, while operating margin was 9.1%, vastly improving from 3.5% last year. The company also delivered its 500th Dreamliner and began final assembly of the very first 787-10 aircraft . The 737 program has done well with over 3,600 orders for the 737 MAX since it launched. Commercial Airplanes booked another 288 orders this quarter. Backlog remains strong with nearly 5,700 airplanes valued at $416 billion.

In the company's Defense, Space & Security segment, revenue was $6.9 billion with an operating margin of 11.8%. These sales are however down 12% from last year's quarter. Why were they down? Well, Boeing Military Aircraft revenues were down quarter-over-quarter to $2.6 billion on lower planned deliveries, and down 18% year-over-year. The Network & Space Systems division saw revenue of $1.8 billion (a small increase versus Q3) and its operating margin was 8.7%. The Global Services & Support Division saw revenue fall 8% to $2.4 billion on volume reductions. However, its operating margin increased to 14.9% on strong operational performance as well as a beneficial contract mix. Like with the Commercial Airplanes segment, there is a significant backlog. Backlog in this segment was $57 billion, of which 37% represents orders from international customers. Commenting on the quarter Boeing President and Chief Executive Officer Dennis Muilenburg stated:

"With solid fourth quarter operating performance and a sharp strategic focus, we extended our aerospace market leadership in our centennial year and positioned Boeing for continued growth and success in our second century. We led the industry in commercial airplane deliveries for the fifth consecutive year, achieved healthy sales in our defense, space and services segments, and produced record operating cash flow, which fueled investment in innovation and our people and generated significant returns to shareholders. Looking forward, our team is intent on accelerating productivity and program execution to deliver increasing cash and profitability from our large and diverse order backlog of nearly $500 billion, standing up our new integrated services business, and capturing an even greater share of the growing global aerospace market to deliver superior value to our customers, shareholders and employees."

It was another positive quarter. As for 2017, looking ahead, revenue guidance was set to be between $90.5 and $92.5 billion. Core earnings per share for 2017 is seen coming in at $9.10 to $9.30 with operating cash flow expanding to $10.75 billion. I will point out that Boeing revises guidance throughout the year and this is subject to change again. The outlook is decent especially for earnings, but revenue expectations are light. This however reflects the nature of the business. I never thought I would say this, but given the massive rise in share prices, I am taking some off the table personally, around 30% of the position. I am focused on the long-term but the rally is a little ahead of itself given the outlook. At current price levels I am holding the remainder.

Note from the author: Christopher F. Davis has been a leading contributor with Seeking Alpha since early 2012. If you like his material and want to see more, scroll to the top of the article and hit "follow." He also writes a lot of "breaking" articles that are time sensitive. If you would like to be among the first to be updated, be sure to check the box for "Real-time alerts on this author" under "Follow."

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.

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