Option Trade 
Boeing Co (NYSE:BA) Calls
Tuesday, July 25, 2017

** OPTION TRADE: Buy the BA SEPT 15 2017 220.000 CALL at approximately $2.15. Place a pre-determined sell at $4.30.

Note: No protective stop losses added -- but if you wish to do so make it $0.85.

Also Note: This is a recommendation and individual members can use their own discretion as to when to enter or exit!

by Ian Harvey   

Aerospace giant Boeing Co (NYSE:BA) is scheduled to report second-quarter results before the market opens on Wednesday, and is expected to report core earnings, which exclude nonrecurring items, of $2.30 a share for the quarter to June 30, according to the average estimate of 18 analysts. That compares with a loss of 44 cents a share, in the same period a year ago, and down from consensus of $2.33 as of March 31.

The current form of its global services and support business is one area expected to post a sales rise from last year.

On July 1, the company launched its Boeing Global Services (BGS) business, which integrates the company’s services capabilities in its government, space and commercial sectors. Chief Executive Dennis Muilenburg said then that the aerospace services business is one of Boeing’s “biggest growth opportunities,” as the commercial and government services market is expected to grow to be worth about $2.6 over the next decade.

The stock has been on a tear this year, supported by a strong showing at the Paris Air Show last month, with order announcements beating expectations and its biggest rival Airbus SE, and hopes of supportive policy from President Donald Trump’s administration.

It has soared 36% year to date, while the SPDR Industrial Select Sector exchange-traded fund XLI, -0.22%  has climbed 10% and the Dow Jones Industrial Average DJIA, -0.31%  has gained 9%.

Boeing stock has a 50-day moving average price of $198.65 and a 200-day moving average price of $180.89. The stock has a market capitalization of $127.71 billion, a PE ratio of 26.071 and a beta of 1.12. Boeing Company has a 12-month low of $126.31 and a 12-month high of $212.20.

Influencing Factors to Consider

Boeing stock has been on a nice run for some time. During the past five years, the return has come to a robust 183%.

JPMorgan Chase analyst Seth Seifman thinks this will continue. In a recent report, he noted:

    “BA is among the stocks best positioned to benefit from positive aero fundamentals. BA is consciously trying to shape the industry to capture more value for itself, which could mean strong relative performance and potential upside to estimates.”

Analyst Ken Herbert at Canaccord Genuity said “We believe that for Boeing, breaking out its services business into a separate operating segment makes sense, and we believe the positives from the push into services has the potential to be game changing for Boeing and the industry,” adding that the potential for margin upside is uncertain and the “strategy for growth in this business has not yet been articulated by the company.”

The Donald Trump Administration has requested a $54 billion increase to the defense budget, which includes a $30 billion amendment for this year. It appears that one of the expenditures will be for Boeing’s Super Hornet jet, which is an alternative to Lockheed Martin Corporation’s (NYSE:LMT) F-35 fighter.

But BA is also taking important steps to restructure its military defense business. Some of the moves involve cutting back on managerial layers — which should not only reduce costs but also improve the nimbleness of the organization — but also to focus more on the growth opportunities, such as autonomous systems.

The airline business is the main driver for BA stock.

The good news is that the momentum continues to be standout. During the latest Paris Air Show, BA snagged $75 billion in new deals for 571 planes. Airbus SE, on the other hand, was able to sign only $42 billion in contracts.

A key for BA is that the company has been successful with its single-aisle jets, which have continued to see tremendous demand. Consider that the launch of the 737 Max 10 has already resulted in 16 new customers, such as United Continental Holdings Inc (NYSE:UAL).

More importantly for BA stock, the long-term demand for commercial aircraft is likely to remain robust. The company recently increased its 20-year global forecast for overall spending to a staggering $6 trillion, which comes to 41,030 jets.

Furthermore, the aerospace behemoth signed a memorandum of understanding (MOU) with SpiceJet, for 40 737 MAX airplanes, valued at $4.7 billion. Another MOU was signed with Tibet Financial Leasing for 20 737 MAX airplanes, valued at approximately $2.5 billion.

Apart from this, the company clinched an order from AerCap for 30 787-9 Dreamliners, worth $8.1 billion. Given enormous commercial demand in the market, Boeing is expected to witness significant traction going ahead, especially in the single-aisle market.

Notably, the second-quarter order details revealed by Boeing of late, shows that it booked 183 net commercial orders (accounting for cancellations). This reflects an increase from the year-ago figure of 171, which also will contribute significantly to the company's top line.

Analysts and Hedge Funds Opinions

Boeing Company had its price objective upped by Robert W. Baird from $208.00 to $240.00 in a report issued on Monday, July 10th. They currently have an outperform rating on the aircraft producer’s stock.

Also, Boeing was upgraded by Zacks Investment Research from a “hold” rating to a “buy” rating in a research note issued on Friday. The brokerage presently has a $236.00 target price on the aircraft producer’s stock. Zacks Investment Research‘s target price suggests a potential upside of 11.25% from the stock’s current price.

According to Zacks, “Boeing is the largest aircraft manufacturer in the world in terms of revenue, orders and deliveries, and one of the largest aerospace and defense contractors. Demand for its commercial airplanes is on the rise due to a steady improvement in passenger and freight traffic. Recently, the company released 20-year market outlook, as per which it forecasts jetliner demand to increase by 3.6%. The single-aisle jets are expected to be the major driver behind demand growth. Further, the company’s defense business stands out among its peers by virtue of its broadly diversified programs, strong order bookings and order backlog. Boeing’s share price has outperformed the Zacks categorized Aerospace/Defense industry price over the last one year. However, the company continues to face challenges from the uncertain fate of high-cost programs, order cancellations, stiff competition as well as falling delivery numbers.”

According to a Reuters consensus, of the 24 analysts tracking Boeing (BA) stock, 20.8% (five analysts) have a “strong buy” recommendation, 29.2% (seven analysts) have a “buy” recommendation, 33.3% (eight analysts) have a “hold” recommendation, and 12.5% (three analysts) have a “sell” rating. Just one analyst (4.2%) recommended “strong sell.”

The stock has also seen upgrades from two major research houses. Cowen raised its target price from $235 to $255. JPMorgan Chase raised its target price from $205 to $240, and upgraded its rating to “overweight” from “neutral.” The stock rallied on the day JPMorgan Chase raised its target.

Boeing’s 12-month target price is $225. Currently, Boeing’s highest target price is $255, while its lowest price target is $130.

Harvey’s Options Volatility Indicator


Shares of Boeing have rallied 57.6% in the last 12 months, outperforming the industry’s gain of 27.8%. This might be because of the company's strong balance sheet and cash flows that provide financial flexibility in matters of incremental dividend, ongoing share repurchases and earnings accretive acquisitions.

Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

** OPTION TRADE: Buy the BA SEPT 15 2017 220.000 CALL at approximately $2.15. Place a pre-determined sell at $4.30.

Note: No protective stop losses added -- but if you wish to do so make it $0.85.

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