Boeing Stock – I downgraded Boeing (NYSE: BA ) from Buy to Hold. In my previous article published on February 4, 2022, I reviewed British Airways’ fourth quarter 2021 financial results and highlighted lower-than-expected revenue and positive free cash flow. In this article I will focus on a mid-term or five-year outlook on Boeing’s recent developments.
Five years from now, Boeing needs to achieve the high operating profit it achieved before landing the 737 MAX in 2018. Recovery of the airline industry and resolution of various issues with the 787 and 777X will boost BA’s medium to long-term operational and financial performance. But I think Hold (rather than Buy) is a more appropriate investment rating for Boeing as the company may need more time to resolve the short-term issues it is currently experiencing.
Boeing Stock
According to the chart below, BA’s share price has fallen for free this year, and the company’s recent release of key financial data for the first quarter of 2022 appears to have accelerated the decline in Boeing’s stock.
Boeing Stock Forecast For 2023 (nyse:ba)
Boeing announced its first quarter 2022 results ahead of the market opening on April 27, 2022. BA shares fell -7% from $167.04 on April 26, 2022 to close at $154.46 the next session (earnings day). Boeing stock corrected -14% over the next month to close at $132.23 on May 27, 2022. In other words, Boeing lost more than a fifth (or -21%) of its market value after reporting the most. Quarterly financial results. For reference, British Airways shares are down -34% since the start of the year.
BA’s revenue fell -8% year over year, from $15.2 billion in 1Q21 to $14.0 billion in 1Q22. It was also the third straight quarter in which Boeing’s revenue fell short of market expectations, and the revenue shortfall appears to be worsening quarter by quarter. Boeing’s third-quarter 2021 and fourth-quarter 2021 revenue missed Wall Street’s consensus quarterly forecast by -6% and -11%, respectively. Notably, BA’s Q1 2022 revenue is -12% (and wider) than sell-side analysts’ consensus estimate of ~$15.9 revenue.
In addition, Boeing’s non-GAAP adjusted net loss per share increased from -$1.53 in the first quarter of 2021 to -$2.75 in the first quarter of 2022. Ahead of the company’s latest quarterly earnings report, the market had expected a very small loss from BA. – $0.25 per share. Additionally, Boeing failed to maintain positive free cash flow generation as it did in the fourth quarter of 2021 (as highlighted in my February 4, 2022 article); The company generated negative free cash flow of $3.6 billion last quarter.
Overall, BA’s underlying financials in the first quarter of 2022 are weak, explaining the underperformance of Boeing’s stock price after the earnings report.
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In the next section, I’ll discuss potential upgrade catalysts for Boeing, specifically what BA needs to help it recover from its current share price slump.
I see three main drivers of the recovery in BA’s share price. These factors are also expected to affect Boeing’s medium-term business and financial outlook.
Boeing’s biggest concern for investors is continued delays in delivery of the 787 Dreamliner, which was grounded in May 2021 due to quality control issues, the article pointed out. Another one for May 13, 2022
An update dated May 13, 2022 states that the “Federal Aviation Administration (or FAA)” recently notified British Airways that its “documentation submission for continued delivery of the 787 Dreamliner is incomplete.” Recent news has added to the uncertainty surrounding the resumption of 787 deliveries.
Boeing Stock Resilient Despite Market Meltdown (nyse:ba)
At the Goldman Sachs (GS) Industrials and Materials Conference on May 11, 2022, Boeing assured investors that “conversations with the FAA have been productive.” But BA admitted at a recent investor conference that “I can’t put a date on the resumption of 787 deliveries”, adding: “We have to let them do their job, declare done and then we get the green light.”
Second, investors are waiting for the 737 MAX to return to the Chinese airline market. Meanwhile, the bad news about the 737 Max’s return to China continued.
An article published on May 20, 2022 stated that China Southern Airlines ( ZNH ) ( OTCPK:CHKIF ) “will not consider MAX in its fleet plan before 2024,” while China Eastern Airlines ( CEA ) returned to Boeing Commercial Airplanes. that will not come. Circulation has begun”.
Adding to Boeing’s concerns about the potential return of the 737 MAX to China, production of the 737 MAX has been negatively affected by “supply chain disruptions” and weak US-China relations could be a major political factor complicating matters.
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Planned first deliveries of the 777X have been delayed and there are fears of future delays.
A recent article dated May 9, 2022 highlighted that the “first delivery of the 777X” has recently been “delayed by more than a year to 2025” and quoted the comments of “Air Lease’s Executive Chairman (AL)” that the 777X “project” is in jeopardy. “
Comments from Boeing management at the Goldman Sachs Industrials & Materials conference on May 11, 2022 confirmed the importance of the 777X program. At the investor meeting, BA emphasized that the 777X “will be a replacement for the 47 and 380” and “will be in operation for decades”. So it’s only natural that Boeing’s stock price rises on positive news of the 777X in the future.
In short: As the aforementioned catalysts materialize, Boeing stock should eventually rebound. However, as mentioned above, this will take time and the exact time cannot be determined.
Is Boeing’s Stock A Buy Or A Sell Before Earnings?
My view is that Boeing is a good long-term stock based on expectations of a faster-than-expected recovery in the global airline market and a return to normal levels of air travel. In this regard, Boeing is looking at the recovery and growth of the world aviation market in the future.
IATA or International Air Transport Association Director General Willie Walsh recently spoke on May 17, 2022, highlighting encouraging signs of recovery in some aviation markets. For example, Willie Walsh revealed that travel in “some parts of the world, including Europe, North America and Latin America” has returned to 60% of pre-pandemic levels. Overall, international travel volume increased from 25% pre-COVID in 2021 to 48% in Q1 2022.
On 17 May 2022, it published a research report outlining expectations for “air traffic” to return to “pre-pandemic levels” by the “second quarter of 2025”. In other words, it won’t take more than five years for the global airline market to return to its pre-COVID-19 state. This also leads to the next part of my article: Boeing’s five-year vision.
The turning point for Boeing came in early 2019, when the 737 MAX was grounded and British Airways’ financial performance began to deteriorate. The key question for British Airways is when the company will return to pre-2018 revenue and profit levels. The sell-side agreement expects Boeing’s financial performance to return to 2018 levels in 2026, or five years later. Time and I agree.
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Boeing’s revenue is expected to grow at a CAGR of 12.6%, from $62.3 billion in 2021 to $113.0 billion in 2026, surpassing Boeing’s 2018 revenue of $101.1 billion.
.Similarly, BA’s EBIT margin is expected to decline from 4.1% in FY2022 (the company’s 2021 loss) to 10.9% in 2026, while Boeing’s 2018-11 EBIT margin was 9%. In fiscal 2026, Boeing’s earnings before interest and taxes will return to $12.4 billion, slightly higher than the company’s earnings of $12 billion in fiscal 2018.
As mentioned earlier, the recovery of the global aviation market, the resumption of 787 deliveries, the return of the 737 MAX to China and the mid-term delivery of the 777X are positive drivers that will help Boeing meet analysts’ expectations. A significant improvement. the plane Financial performance after five years or financial year 2026.
BA stock is the moon. In my view, Boeing’s recovery is more a matter of “when” than “if.” However, recent quarterly financial results and other key corporate developments covered in this article suggest that BA’s recovery may take longer than expected. This justifies my decision to rate Boeing a hold rather than a buy.
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