The Boeing Company (BA - Free Report) recently signed an agreement with the Vietnamese startup airline, Bamboo Airways, for delivering 20 787-9 Dreamliner aircraft to the latter. The deal, on finalization, is estimated to be worth around $5.6 billion, at current list prices.
Per the terms, Bamboo Airways already completed the deposit requirement this month for reserving 20 airplanes, which are tentatively scheduled for delivery, from April 2020 through 2021.
Boeing’s Prospects in the Southeast Asian Market
In 2017, Boeing identified Southeast Asia as one of the fastest growing markets worldwide for new airplanes. In this context, the company forecasts that the region will need 4,210 new airplanes, valued approximately at $645 billion, in next 20 years. The company also estimates annual air traffic growth of 6.2% over the next 20 years in this region, outpacing the world’s average growth rate by 1.5%.
Naturally, to capitalize on the growing opportunities in Southeast Asia, Boeing aims at inking deals for its commercial jet fleet. The latest deal is a glowing example of that.
What’s Ahead for Boeing?
Per Boeing’s current market outlook, the world would require 41,030 new planes between 2017 and 2036, worth $6.1 trillion.The company expects widebody jets to be a strong driver, comprising 20% of the total projection. This translates into worldwide demand for 8,210 widebody jets, worth $2.9 trillion, over the next 20 years. As the company continues to witness frequent contract wins for its commercial airplanes, such demand growth should continue to fuel its overall revenue expansion.
Moreover, in the first quarter of 2018, the company’s Commercial Airplane Segment, which includes the 787 dreamliner jets, saw an 8% rise in revenues to $13.65 billion. Further, it delivered 184 commercial planes during the quarter, which was up 9% year over year, alongside securing orders for 24 787 dreamliners. Looking ahead, Boeing remains focused on improving cash generation and profitability, driven by favorable delivery mix, supplier step down pricing, and efforts to drive internal productivity and supply-chain management.
Such efforts should bolster Boeing’s position in the commercial aerospace market, as prospects for twin-aisle jet planes seem impressive, with more airlines shifting to small and medium-sized wide-body airplanes like Boeing’s 787 fleet. The company’s latest commitment to Bamboo Airways is one such example. Thus, we may expect Boeing to reflect similar strong results and acquire more commercial contracts in days ahead, which, in turn, are likely to boost the company’s profit margin.
Boeing’s stock rallied about 65.6% in a year compared with the industry’s growth of 28.9%. The outperformance was primarily led by the robust worldwide demand for its commercial aircraft and military jets.
Zacks Rank & Key Picks
Boeing currently carries a Zacks Rank #2 (Buy). A few other top-ranked stocks in the same space are Northrop Grumman (NOC - Free Report) , Textron (TXT - Free Report) and Wesco Aircraft Holdings (WAIR - Free Report) .
While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.
Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 5.65% to $16.44 in the last 90 days.
Textron came up with an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.94% to $3.15 in the last 90 days.
Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.
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