Boeing: Things appear to be looking up
The travel and leisure industry has experienced profound weakness due to the COVID-19 pandemic. This weakness is ongoing; however, in recent quarters, management teams from companies in this space have begun to provide more upbeat guidance associated with the vaccination roll-out and the thought that herd immunity in many developed nations is a realistic short-term expectation.
Boeing (BA), which is arguably the most iconic company in the travel space, due to its position as a part of the global duopoly in the commercial aerospace market, saw its operational results and its stock price, fall precipitously during the pandemic period. However, in recent months we’ve seen a strong uptick in bullish sentiment surrounding this stock. And, in recent days, Boeing has been tagged as one of the most talked about stocks, by investors, analysts, and bloggers that our algorithm tracks, which inspired us to put together this piece.
Roughly 2 years ago, in early March of 2019, Boeing shares hit an all-time high closing price of $440.62. During the depths of the COVID-19 recession, on March 18th, 2020, BA shares hit their current 52-week low of just $89.00/share, representing a drop of nearly 80%. Since then, we’ve seen BA shares bounce back to the
During the 2014-2018 5-year span, Boeing’s free cash flows increased from $9.08 billion to $23.33 billion. And, coming into 2019, analysts had bullish expectations of continued bottom-line growth. However, unexpected disaster struck.
In late 2018 the world received news of the Lion Air Flight 610 crash. This plane was a Boeing 737 Max. And then, on March 10th, 2019, news broke that Ethiopian Airlines Flight 302 crashed as well. Once again, this was a Boeing 737 Max airplane.
These two crashes resulted in the worldwide grounding of the 737 Max airliner, which was a devastating blow to Boeing’s operations. The 737 Max was meant to be Boeing’s growth catalyst in the fast growing narrow body plane segment. The Max grounding alone would have caused Boeing’s cash flows to crater; however, when the COVID-19 pandemic struck in early 2020, putting further pressure on the aerospace industry at large and therefore, Boeing’s ancillary revenue streams.
Boeing, which was viewed as a free cash flow machine by many investors, saw that metric fall from $23.3 billion in 2018 to -$7.79b in 2019. In 2020, during COVID-19, BA’s free cash flow fell even further, to -$34.64 billion. These negative earnings forced Boeing management to cut its dividend, stop buying back shares, lay off 10’s of thousands of workers, give more than 80,000 employees stock bonuses instead of their annual raises, contribute stock to the company’s pension plan, rather than cash, and raise massive amounts of debt to cover its expenses.
Boeing’s long-term debt was $60.99 billion at the end of 2020. This figure was up drastically from the $8.5 billion in long-term debt that this company had on its balance sheet at the end of 2018.
But, things do appear to be looking up for Boeing, according to the 5-star analysts that the Nobias algorithm tracks. Last week, Lou Whitman of The Motley Fool, highlighted a recent deal between the U.S. and European regulators to pause aerospace tariffs as a bullish catalyst for Boeing, and its counterpart in the aforementioned duopoly, AirBus, which is domiciled in France.
Whitman notes that the European Commission President, Ursula von der Leyen, released a statement after a conversation with U.S. President, Joe Biden, saying, "This is excellent news for businesses and industries on both sides of the Atlantic, and a very positive signal for our economic cooperation in the years to come."
A resolution of this trans-Atlantic trade dispute, which was yet another headwind that Boeing was dealing with, has the potential to be a significant boon for BA’s bottom-line over the long-term, assuming a final deal between the Biden administration and EU regulators comes to pass.
Boeing recently received good short-term news as well. In a separate article posted in early March, Whitman reported that United Airlines added 25 737 Max jets to its recent order and decided to accelerate the delivery of 45 of the 188 737 Max planes that it has on order to the 2022/2023 timeline.
Boeing recently reported February 2021 aircraft sales, which saw 82 sales and 51 cancelations. This marks the first month since November of 2019 that BA’s sales outnumbered cancelations. This news, alongside the recent United Airlines deal, points towards what could be a positive shift in Boeing’s sales data.
Whitman expressed cautious optimism about this news, saying, “Still, investors should note that this news is one small step in a long recovery for Boeing. Until the pandemic is behind us and airlines are able to rebuild their balance sheets, we are unlikely to see the sort of upcycle in new plane orders that Boeing was enjoying before.”
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.
Members of the analyst community appear to have more conviction about their bullish outlooks. Morgan Stanley’s Kristine Liwag recently raised her price target on the stock from $230 to $250/share. This raise came after Liwag’s late January upgrade of Boeing, from underweight to overweight, when she said her price target from $165 to $230, saying that Boeing is “a COVID-19 recovery play with upside.”
The early March increase to $250 further solidifies that bullish opinion. This isn’t the only recent upgrade that Boeing has received. Canaccord Genuity’s Ken Herbert recently raised his price target on Boeing from $200 to $275. During his report, Herbert said, “"We are upgrading the shares of Boeing (BA) from Hold to BUY and increasing our price target to $275. Our upgrade is based on three factors: 1) the MAX return to service; 2) the improved outlook for travel and the airline recovery, which will correspond with a positive inflection in the aerospace cycle; and 3) the stabilization in the wide-body outlook. While we continue to see risk to the Boeing 737 MAX production schedule, we believe the combination of a recovery in passenger traffic, higher fuel prices, and improved airline financial health will support BA’s MAX delivery plans."
Herbery also noted that in his opinion, the fourth quarter of 2020 will prove to be the order trough for Boeing, which is in-line with the above sentiment expressed by Whitman.
Disclosure: Nicholas Ward does not have a position in Boeing. 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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