Boeing Risks Include Updated 777 & Global Currencies

Shares of Boeing Co (NYSE: BA) are up over 15 percent year-to-date on back of strong fourth-quarter results, and the Street expects this trend to continue as the economy continues to show signs of growth.

Kenneth Herbert from Canaccord Genuity was on CNBC Tuesday to discuss the outlook and the risks associated with the stock.

Boeing's January Numbers

“They reported very good results the end of January. The stock was up big that day; it was up big the second day 6 to 7 percent, which was very unusual,” Herbert said.

Explaining Boeing's current standings, Herbert continued, “You have got $12 billion in cash for buybacks over the next two years. You have got backlogs that look like it’s going to hold very strong. And you have got continued strong fundamentals.

“People continue to fly. So, I think the backdrop is very favorable.”

What Risks And Headwinds Does The Company Face?

“First, Boeing has announced they are launching 777x, which is an upgrade to the 777 aircraft. In order to avoid cutting production rates on the 777, they need to sell about 50-60 of the planes for the next 3 to 4 years each year.

“That’s certainly a risk if they have to cut rates on the 777, because it is a very profitable plane and a very significant contributor to cash.”

Related Link: Boeing, Korean Air Announce Order For Five 777 Freighters Valued at $1.5B+

He continued, “You have got half the backlog give or take, that’s in Asia and Europe as airlines of course – and leasing companies pay for aircrafts in dollars. So, as their local currencies perhaps continue to weaken, that’s certainly a risk.

“And then I think about the defense budget as well. It looks like you have got some stability there, but that’s certainly a risk also.

“I would say the 777 and of course currencies are the two things I am watching the closest right now,” Herbert said.