BA with Nobias technology: Coming Into Q3 Earnings, Is Boeing Ready To Rally?
Boeing’s fall from grace, as a best-in-breed industrial stock and a market darling, especially amongst dividend growth investors, during recent years has been an intriguing story to follow. It wasn’t long ago that Boeing was generating massive cash flows due to the popularity of its narrow body plane sales.
The company held an incredible strong market share position as a part of a global duopoly in the commercial air space (alongside AirBus) and wasn’t only seeing its sales increase, but its margins as well, due to the strong demand for its products and the burgeoning services segment that management was focused on which didn’t only generate reliably, recurring revenues, but also widened the company’s moat by increasing switching costs for airlines due to a more vertically integrated model.
Coming into 2019, Boeing had a record backlog and it appeared that the stock had smooth sailing ahead due to the secular growth that was playing out in the global aerospace industry. However, then we saw the 737 Max groundings, which shook the world’s confidence in Boeing’s hardware, which was quickly followed by the COVID-19 pandemic, which effectively shut down global travel.
This one-two punch caused Boeing’s earnings to go negative in 2019 and then again in 2020, it forced management to cut BA stock’s dividend, and do immense damage to the company’s balance sheet as Boeing had to raise approximately $35 billion in debt to avoid tapping into government stimulus that was available during the COVID-19 period.
From early 2019 to early 2020, BA shares sold off from their record highs in the $440 area to lows around $100.00/share. Since the depths of the COVID-19 sell-off, we’ve seen BA climb out of that hole and today, shares trade for $217.04. Today’s share price still means that BA is trading down more than 50% from its all-time highs set just a couple of years ago. And, now that we’re seeing an uptick in travel as the world’s economy reopens, we wanted to take a look at what the credible authors tracked by the Nobias algorithm have had to say about BA shares. Boeing is scheduled to report Q3 earnings in late October, making this an intriguing stock for investors looking for exposure to potential reopening plays.
Kamaron Leach, a Nobias 4-star rated analyst, recently published an article at Bloomberg which highlighted the confidence that some of the beaten down industrial names that were really hurt during the COVID-19 are now expressing. Leach mentioned that big-tech firms continue to cash their massive cash flows to bolster their balance sheets; however,he’s seeing a lot of cyclical non-financial names becoming more aggressive with their cash hoards, saying, “But others seen as prime beneficiaries in the changing economic landscape -- such as GE and Boeing on the aerospace front -- have begun spending down reserves, just as consumers are returning to old spending and travel habits.”
Leach quoted a source, Jeff Windau, a senior analyst at Edward Jones, who said, “A year or so ago in the throes of the pandemic, I think everyone was really trying to bolster their balance sheets. Now things have rebounded considerably with better visibility given how the trends are progressing and things look to be improving quite a bit from an industrial economy standpoint.”
Leach points out that Boeing’s cash hoard has fallen from $32.4 billion a year ago to $21.3 billion when his article was published back in August after the company’s second quarter results. During BA’s Q2 conference call, Dave Dohnalek, the company’s interim CFO, highlighted the company’s plans regarding its cash position saying, “Our debt balance remains stable at $63.6 billion at the end of the quarter. We expect to have lower total debt at the end of the year due to the paydown of maturing bonds and potential early paydown of our delayed draw term loan.”
Dohnalek continued, “We remain focused on reducing our debt levels and actively managing our balance sheet. Our investment-grade credit rating is important to us and we will continue to consider all aspects of our capital structure to strengthen our balance sheet.” Dohnalek said that he expects BA to become cash flow positive again in 2022 and as Leach points out, higher capital expenditures from non-financial stocks who’re experiencing renewed confidence like this should help to bolster economic growth, meaning that the confidence seen by management teams like BA’s has the potential to create a virtuous economic cycle (propelling fundamentals higher over the short-to-medium term).
While BA hasn’t posted earnings data yet, the company has recently published its Q3 delivery data from its commercial and defense segments. Ben Mahaney, a Nobias 4-star rated author, published a report on Yahoo Finance which highlighted the company’s recent delivery data.
Mahaney said, “With overall travel rebounding, Boeing delivered a total of 85 commercial jets in Q3, up from 79 jets delivered in Q2. This included 66 deliveries of the 737 MAX jet and none of its 787 models.” He continued, “Additionally, Boeing delivered a total of 37 defense aircraft in Q3, fewer than the 43 delivered in Q2. Year-to-date, Boeing has delivered a total of 241 commercial jets and 122 military aircraft.”
Mahaney highlighted a quote from the company which read, “In our commercial business, we increased 737 MAX deliveries in the quarter, and progressed in safely returning the 737 MAX to service in more international markets.” He also highlighted an analyst report which Cowen & Co.’s Cai Rumohr published in response to Boeing’s delivery data.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
Mahaney wrote, “Rumohr was disappointed with the September deliveries as 737 picked up the pace, but 787 still paused. However, he is encouraged by the fact that Boeing’s 22 net orders show the eighth straight month of positive bookings, reflecting an uptick in demand and surpassing Airbus’ 1 net order after lagging it in August.”
Since reporting Q2 results, Boeing shares are down roughly 12.5%. The positive order flow and the 2022 projections from management are great, but after so much negative volatility in recent years, it appears as though the market is waiting for more concrete data, with regard to the company’s growth rebound. This means that the upcoming Q3 report has a chance to play a major role in the company’s share price movement moving forward.
Coming into the Q3 reporting season, the vast majority of the credible analysts that the Nobias algorithm tracks have a positive outlook for Boeing shares. 87% of the credible authors that we track currently express “Bullish” sentiment when it comes to BA shares.
And, the average price target of $256.67 for BA shares posted by the blue chip (4 and 5-star rated) Wall Street analysts tracked by the Nobias algorithm is currently 18.3% higher than BA’s current share price of $217.04. With this in mind, it appears that the credible community of authors that we track are betting on a rebound for BA shares as the broader economy continues to improve coming out of the COVID-19 pandemic.
Disclosure: Nicholas Ward has no positions in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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