Boeing BA and Brazilian aerospace conglomerate Embraer S.A. ERJ announced on Thursday that the two companies are set to enter an agreement that will see Boeing own the controlling stake of a new multibillion-dollar venture. Speculation surrounding a deal had circulated for months, so now let's take a look at how it might benefit Boeing in its fight against Airbus EADSY and evaluate BA stock to see if it is worth buying at the moment.
Boeing and Embraer are forming a $4.75 billion joint venture, with Boeing owning 80% and Embraer holding 20%, of a partnership controlling the Brazilian company's commercial aircraft and services business. The non-binding agreement is expected to close by late 2019 following the necessary regulatory approval process and is projected to be accretive to Boeing's earnings per share starting in 2020.
The deal is expected to help Boeing bolster its smaller jetliner business after Airbus finalized its deal with Bombardier Inc. to take over its C Series class earlier this year. Boeing and Airbus have effectively become a duopoly in the market for planes with more than 150 seats. Now, the Chicago-headquartered company is ready to dive further into single-aisle jetliners and expand its offerings of 100-seat planes.
Embraer is known for its regional passenger planes that seat between 70 and 100 people and is one of Bombardier's main competitors. "The agreement with Boeing will create the most important strategic partnership in the aerospace industry, strengthening both companies' leadership in the global market," Embraer CEO Paulo Cesar de Souza e Silva said in a joint statement.
Boeing's Embraer deal will help the company continue to compete against its only real rival on a new battlefront, while also preparing Boeing to fight off new threats emerging from China, Japan, and Russia.
Shares of Embraer sunk over 10% through morning trading on Thursday as investors vented their frustration that the company was unable to grab a larger deal from Boeing after talks began last year. Meanwhile, Boeing stock fluctuated after the deal and was up marginally at mid-day.
Price Movement & Valuation
With the highlights of Boeing's partnership to bolster its smaller jetliner business covered, let's move onto the company's recent price movement and current valuation picture to help investors understand where the giant, valued at over $193 billion, stands at the moment.
Shares of Boeing have surged over 215% during the last five years, which tops the S&P 500's roughly 70% climb. Much of this strong growth has come over the last few years, with BA up 161% since July 2016-outpacing Airbus'112% surge. BA stock is also up 65% over the last year. However, shares of Boeing have gained only 12% in 2018 on the back of trade war speculation that has pushed its shares down 10% in the last month to rest roughly 12% below their 52-week high.
The recent downturn has made Boeing's valuation picture look even more solid. Boeing is currently trading at 21X forward 12-month Zacks Consensus EPS estimates, which marks a premium to the S&P's 16.7X and Airbus' 19.2X.
With that said, BA has traded as high as 30.6X over the last year, with a one-year median of 23.5X. Investors will also see that Boeing stock is currently trading almost directly in line with its year-long low of 20.5X. Furthermore, Boeing has traded at a premium compared to the index and Airbus for years, but BA also looks rather attractive at its current levels.
Looking ahead, Boeing has an order backlog of about 6,000 jets valued at more than $400 billion . The company's backlog is made up of over of 4,600 737 airplanes. The company also noted that FedEx FDX has placed firm orders for 100 767s.
Boeing is projected to see its Q2 revenues climb by 3.3% to touch $23.49 billion, based on our current Zacks Consensus Estimate. Looking ahead to the full-year, Boeing's revenues are expected to climb by 5.2% to touch $98.2 billion.
Moving onto the other end of the income statement, Boeing's adjusted quarterly earnings are projected to pop by 33.7% to reach $3.41 per share, while its full-year EPS figure is expected to expand by 21.8%.
Boeing is currently a Zacks Rank #1 (Strong Buy) and boasts an "A" for Growth in our Style Scores system. On top of that, BA has earned two upward earnings estimate revisions against zero downgrades for both its current full-year and the following year, all within the last 60 days.
Investors can also buy Boeing stock at a bit of a discount at the moment compared to where it was just a few months ago. And let's not forget the company is a dividend payer, with a yield of 2.05%.
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