The Boeing Company (NYSE:BA): What is driving earnings?

Boeing's steady outlook for net income drives analysts to expect subtle growth of 6.50% in the coming 12 months, but it's necessary to take a moment and think through this appraisal. It is crucial for investors to do this, so they can judge the underlying components responsible for spurring this growth, because the sustainability of returns to shareholders can be impacted on in different ways. To help investors get a top level understanding, I will try to evaluate Boeing's margin behaviour so investors can evaluate the revenue and cost drivers behind future earnings projections and understand how they may impact on returns compared to the industry.

A closer look at BA's profit margin

Attractive margins generally indicate a desirable ability to translate sales revenue in to earnings, and return for shareholders. Knowing the portion of top line revenue that is turned into net income helps to assess this ability whilst spotting profit drivers, and can be found by calculating BA's profit margin.

Boeing's margin has expanded in the past five years, as a result of 7.02% in average net income growth outstripping average revenue growth of 5.57%, indicating that that the previous revenue growth has been acompanied by a growing portion translated in to earnings. The current 7.33% margin seems to continue this movement, which could imply improved cost efficiency as well as increasing revenue contributed to the previous earnings growth.

Using Boeing's margin expectations as a way to understand projections for the future

Based on future expectations, BA's profit margin will keep on expanding, with 4.00% in expected annual revenue growth and annual net income growth forecasted at 8.35%. This suggests future earnings growth is driven further by enhanced cost efficiency alongside revenue increases, which is enlarging the incremental amount of net income that is retained from the forecasted revenue growth. However, those watching the stock must know margin expansion can mean different things for different companies, thus more detailed research is essential.

Generally, it is useful to judge profit margin and its implication on return in comparison to other companies who share similar traits. For Boeing in particular, future profit margin is expected to expand simultaneously with Aerospace & Defense industry margins, whilst at the same time, the forecasted ROE of Boeing is greater than the industry at 222.68% and 12.01% respectively, although it must not be forgotten than this result is influenced by the company's debt levels. This suggests that analysts expect Boeing's return per dollar of equity will exceed the industry due to the earnings attributes identified in our margin analysis. However, margins use items on the income statement that are prone to being manipulated by various accounting measures, which can distort our analysis. Thus, it is essential to run your own analysis on Boeing's future earnings whilst maintaining a watchful eye over the sustainability of their cost management methods and the runway for top line growth.

Next Steps:

For BA, I've put together three essential aspects you should further examine:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Valuation: What is BA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BA is currently mispriced by the market.

3. Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of BA? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.