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Can Order & Cash Flow Growth Aid Boeing's (BA) Q1 Earnings?

The Boeing Co. BA is set to release first-quarter 2018 results before the opening bell on Apr 25.

The company’s results in the to-be-reported quarter are anticipated to be primarily driven by regular contract wins along with higher commercial jet deliveries.

Let's take a detailed look at the factors influencing Boeing’s quarterly results.

Slew of Contract Wins — Key Catalyst

Being largest aircraft manufacturer and one of the largest aerospace and defense contractors in the United States, Boeing enjoys a solid inflow of contracts from both the Pentagon as well as foreign allies, courtesy its varied product offerings.

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Markedly, the company received a number of big orders for its commercial jets in the first quarter including a $12-billion contract from American Airlines for 47 Dreamliners, a $8.8-billion order from Jet Airways for 75 737-Max jets, a $6.2-billion order from Lion Air Group for 50 737 MAX 10 jets and a $2.8-billion contract from Hawaiian Airlines for 10 787-Dreamliners.

Among the defense contracts won in the first quarter, the significant ones include a $1.2-billion deal to develop a baseline configuration for the production and delivery of 22 F/A-18E and 6 F/A-18F Super Hornets and a modification deal with cumulative face value of $305 million for Royal Saudi Air Force F-15SA fighter jet. Boeing also clinched a contract worth $312-million modification contract for providing Joint Direct Attack Munition tail kits. The company won a delivery order worth $430 million to provide F/A-18 planned maintenance interval-1 high flight hour depot support.

In addition, on Mar 30, 2018 Boeing announced that it has signed a Memorandum of Agreement with Saudi Arabian Military Industries to form a new Joint Venture ("JV") worth $450 million. The JV will help to localize more than 55% of the maintenance, repair and overhaul services for fixed and rotary-wing military jets in Saudi Arabia.Boeing has also agreed to provide the technological know-how required to install weaponry on the aircraft included in the JV as well as localize the supply chain for spare parts.

Thus, it goes without saying that such steady inflow of contract wins will surely boost Boeing’s quarterly sales. Evidently, the Zacks Consensus Estimate for the company’s first-quarter sales is pegged at $22.2 billion, reflecting a year-over-year increase of 5.9%.

Q1 Deliveries to Boost Bottom Line

Boeing’s first-quarter deliveries showed an 8.9% improvement year over year in commercial shipments. However, defense shipments declined 40.5% than the year-ago figure. Higher demand for the 737 jets primarily drove the year-over-year improvement in commercial deliveries. Boeing’s total deliveries were 209 units in the first quarter of 2017, compared with 211 the year-ago period figure.

Notably, during its fourth-quarter 2017 earnings call, Boeing announced that higher volume will drive its bottom line in 2018. Although, the company’s overall deliveries declined, commercial deliveries reflected solid growth and with this business constituting for almost 60% of Boeing’s total revenues, we may expect to see a notable uptick in first-quarter earnings.In line with this, the consensus estimate for the company’s first-quarter earnings is pegged at $2.56 per share, reflecting a solid year-over-year increase of 27.4%.

 

The Boeing Company Price and EPS Surprise

 

The Boeing Company Price and EPS Surprise | The Boeing Company Quote

 

Cash Flow: A Strong Positive

During 2017, Boeing paid $3.42 billion in dividends and repurchased 46.1 million shares for $9.2 billion. This reflects strong balance sheet and cash flows that the company boasts, which in turn provide it financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions. 

Boeing generated $13.34 billion of operating cash flow at the end of 2017, up 27.1% year over year. The company projects to generate operating cash flow worth $15 billion for 2018, reflecting annual improvement of 12.4%. Therefore, we may expect its upcoming results to reflect such solid cash flow features, as we have witnessed in prior years, buoyed by the scrumptious orders that Boeing won in the first quarter. 

What the Zacks Model Unveils

Our proven model shows that Boeing is likely to beat earnings this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Well, Boeing possesses the right combination currently, as the Zacks Rank #2 company has an Earnings ESP of +1.70%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Please note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Other Stocks That Warrant a Look

Here are a few other stocks in the Aerospace and Defense space worth considering on the basis of our model which shows that they have the right combination to pull off a beat:

Rockwell Collins COL is expected to report second-quarter fiscal 2018 results on Apr 27. The company has an Earnings ESP of +0.19% and a Zacks Rank #2.

General Dynamics GD is expected to report first-quarter 2018 results on Apr 25. The company has an Earnings ESP of +0.18% and a Zacks Rank #3.

L3 Technologies LLL is expected to report first-quarter 2018 results on May 1. The company has an Earnings ESP of +2.51% and a Zacks Rank #3.

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