The new year is turning out to be just as I predicted for jet-maker and defense specialist Boeing (NYSE: BA). Fresh on the heels of better-than-expected fourth-quarter earnings results, shares of the Dow component have posted year-to-date gains of 3.59%. Within the Dow, Boeing trails only Disney (NYSE: DIS) and Visa (NYSE: V) in 2017 performance.

New Orders, New Growth Prospects
Boeing stock, currently trading at around $163, reached a new 52-week high of $170 on January 26. This marks a 10% rise since we last recommended the stock on December 15. And it would be a mistake to lock in these gains now, especially as the Chicago-based company continues to secure long-term contracts with various local and international government agencies. Most recently, Boeing announced a win on a $2.1 billion contract to build 15 more KC-46A refueling aircrafts.

#-ad_banner-#The recent order for 15 planes follows a $2.8 billion deal in August for 19 planes, which now puts Boeing’s KC-46A orders at 34. But wait, there’s more. Earlier this month, the company won a $22 billion deal from SpiceJet Ltd., an India-based, low-cost airliner looking to expand its domestic and international operations. India’s fourth-largest airline by number of passengers carried with a market share of 13%, SpiceJet operates more than 300 daily flights to 41 Indian and international destinations.

In an effort to grow its market share, SpiceJet will buy up to 205 next-generation planes from Boeing, marking Boeing’s largest ever order commitment from an Indian airline. Why is that a big deal? Boeing expects India will need almost 2,000 new aircraft worth $265 billion over the next 20 years, with single-aisle planes making up the bulk of new deliveries. And with various India-based airlines announcing flights to new destinations in the country almost every week, Boeing’s revenue in India is poised to take off.

Where Things Stand
Last week, the world’s biggest plane maker reported fourth quarter fiscal 2016 earnings results that beat Wall Street estimates on both the top and bottom lines. In the three months ending in December, Boeing posted a net income of $1.63 billion, or $2.59 per share, compared to $1.03 billion, or $1.51 per share, in the same period a year ago. On an adjusted basis, when taking out one-time gains and costs, earnings were $2.47 per share, which easily beat the average analyst estimate by 12 cents.

While fourth-quarter revenue of $23.29 billion declined 1.2%, down from $23.57 billion a year ago, it still exceeded the consensus forecast of $23.19 billion. During the quarter, not only did the company benefit from higher-than-expected deliveries, Boeing also booked 288 more commercial airplanes net orders during, which puts its already-strong backlog at more than 5,700 airplanes with a total value of $416 billion. Accordingly, Boeing — as evidenced by its guidance — sees no signs of slowing business.

“We led the industry in commercial airplane deliveries for the fifth consecutive year, achieved healthy sales in our defense, space and services segments, and produced record operating cash flow, which fueled investment in innovation and our people and generated significant returns to shareholders,” CEO Dennis Muilenburg said in a statement.

Looking ahead, Boeing expects 2017 core earnings, which exclude some pension and other costs, to be in the range of $9.10 to $9.30 per share on revenue of $90.5 billion to $92.5 billion. The company is also targeting a range of 760 to 765 commercial plane deliveries in 2017, which — on the high end — would mark a 2.2% rise from the 748 deliveries in 2016. Operating cash flow, meanwhile, is expected to reach $10.75 billion in 2017 compared to $10.50 billion in 2016, marking a 2.4% increase.

And here’s the thing: Those estimates are likely too conservative given that the guidance was issued prior to last Friday’s contract announcement for the KC-46As. Boeing had resorted to cost cutting in recent quarters to offset declining revenue, but can now ramp up production and make investments. The company can also boost its buyback program and quarter dividends — which are already strong. For fiscal 2016, the company bought back 55.1 million shares, spending $7.0 billion.

Bottom Line For Boeing Stock
At around $165 per share, Boeing stock is still priced attractively at just 17 times fiscal 2017 estimates of $9.30 per share, which is about two points below the S&P 500 index average P/E. Based on fiscal 2018 estimates of $10.15, the P/E drops to 16. I continue to expect Boeing stock to reach $170 to $180 sometime in 2017, delivering 10% gains. While that might not be breathtaking, the stock has already delivered 10% since we last discussed it. I will wait for one more quarter before bumping up my target. In the meantime, enjoy the 3.39% yield, which handily beats the S&P 500’s 2.0%.

Risks To Consider: The margins contraction and lower volumes in Boeing’s commercial and military segments may pressure the company’s revenue and earnings in the near-term. As the company’s cash flow continues to support the share price, a dip in cash flow could land Boeing stock in short order.

Action To Take: Boeing should be kept on the watch list of investors who are looking for an undervalued defense stock that is trading at a meaningful discount to its long-term potential that also pays a decent yield.

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