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Boeing Is Set To Soar Into The Next Quarter

|Includes: The Boeing Company (BA)

Boeing’s Lucrative Ventures.

Boeing’s Strategic Airforce Expansion.

What do the analysts say?

Global aviation giant Boeing Co (NASDAQ:BA) is gaining traction and placing its sights on ‘air supremacy’, according to blogger Lawrence C Strauss. The world’s largest aircraft manufacturer has also announced a string of lucrative initiatives which makes the stock look compelling at current levels of $389. Let’s take a closer look:

Boeing’s Lucrative Ventures

As part of its long-term strategy to bolster its ‘manufacturing efficiency’, Boeing has ventured into the aircraft ‘components, parts and services’ sector. On May 1, BA publicized its deep-pocketed plans to purchase KLX Inc (NASDAQ:KLXI), an aerospace solutions and parts provider for a staggering $3.2 billion (plus debt). Earlier this year on January 16, Boeing also showed more signs of aviation self-sufficiency, after a joint venture with Adient PLC (NYSE:ADNT) to ‘develop, manufacture, and sell airplane seats.’

On the back of these strategic growth driving initiatives, Boeing also has some more blossoming ventures up its sleeve. In December 2017, reports circulated that Boeing would purchase a majority stake in Brazilian aerospace conglomerate, Embraer SA (NYSE:ERJ). Although the Brazilian government dismissed plans for a full take over, the partnership is on the cards for later this year.

With a succession of high-profile partnerships and heavy-weight acquisitions like these, it’s sure to add a little boost to Boeing’s budding aviation empire. In fact, Boeing’s latest Q1 earnings report already revealed a revenue of $23.38 billion, up from $20.98 billion in 2017. BA also announced a quarterly net profit of $2.47 billion, compared to just $1.45 billion in 2017.

Boeing’s Strategic Airforce Expansion

As part of Boeing’s projected expansion, Boeing Defense CEO Leanne Caret has released plans that the aviation leader will soon deliver ‘the first KC-46A Pegasus tanker to the U.S. Air Force’. Boeing is currently rolling out its strategy to transform 767 commercial jets into military ‘combat-grade tankers for refuelling, carrying cargo and performing emergency evacuations.’

Although the project has been plagued by several delays and unplanned costs running into $2 million, Carat tried to put a positive spin by announcing that Boeing is on track to deliver 18 aircrafts in a ceremonial fashion by the end of 2018 or early 2019.

On a similar thread, Boeing executives revealed they have installed the final version of software to resolve a glitch found with the KC-46 tankers. On May 4, Mike Gibbons, the KC-46 program manager at the Everett plant signaled that the software will be installed ‘over the next few months’ to correct a visibility flaw that emerged during refueling operations. Boeing is currently contracted to deliver the first 18 aircrafts, but the U.S. Air Force signaled it will eventually order 179 tankers to supersede its fleet of ageing KC-135s.

What the analysts say

Nicholas Heymann, an analyst at William Blair predicts that ‘Boeing has the financial wherewithal to make acquisitions to get further into avionics’. Heymann expects Boeing to become a more ‘influential player in aircraft interiors and avionics when it rolls out its new midsize aircraft, informally known as the B797, in the middle of the next decade’.

This prophetic move towards aircraft autonomy is being tracked carefully by Boeing’s existing suppliers such as United Technologies Corp (NYSE:UTX). Greg Hayes, the CEO of UTX, said he is concerned about the emergence of Boeing in this area, but he dismissed it as a competitive threat by contesting that UTX still offers a niche product in which they have ‘invested in over time’. Hayes added that ‘the issue is for us to focus on continued innovation, product development, and cost reduction.’

Nevertheless, Credit Suisse analyst Robert Springarn recently elevated his price target for BA to $455, up from $443 and reiterated his Outperform rating. Springarn is evidently ‘enthusiastic about both the macro revenue story and the micro margin story’, which is ‘driven by a generational initiative by management to streamline the aircraft production process and the supply chain behind it’.

Indeed TipRanks stock analyst ratings shows that the overall consensus is a promising Moderate Buy. The 12-month average analyst Boeing price target is $399.90 which suggests upside potential of 17.5%.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.