Is Boeing Stock A Buy Ahead Of Earnings Report While New 737 Issue Lingers?

Boeing (BA) is still working on a fix for wiring issues that affect 106 Boeing 737 jets. Is Boeing stock a good buy now? Investors should look at the aerospace giant’s fundamentals and the BA stock chart.




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The wiring issue was disclosed on April 7 and affected carriers, which include Southwest Airlines (LUV), United Airlines (UAL) and American Airlines (AAL), have grounded the jets. Airlines are hopeful the issue will be resolved within weeks.

The grounding comes as Boeing and other travel-related companies rallied after U.S. health officials said fully vaccinated people can travel within the U.S. The Transportation Security Administration has seen over 1 million travelers come through its checkpoints daily since March 11.

Airlines have also increased aircraft orders in recent months as the 737 Max returns to service.

Boeing Stock Fundamental Analysis

Meanwhile, Boeing will report Q1 results on April 28. Analysts see a loss of $1.17 per share vs. a loss of $1.70 per share in the year-ago quarter. Revenue is expected to fall 15% to $14.4 billion. Commercial aircraft deliveries jumped 54% to 77 in the quarter, including 63 737s.

Boeing earnings-per-share growth has averaged 0% over the past three years, according to IBD Stock Checkup. In the fourth quarter, Boeing reported a whopping loss of $15.25 per share, far worse than consensus views for a loss of $1.78 and a year-ago loss of $2.33 a share, as it booked $8.3 billion in pre-tax charges.

The biggest Q4 charge was a $6.5 billion loss on its 777X program, as the first delivery has slipped to late 2023 from a 2022 timeline given in July.

Revenue has contracted by 17% on average over the past three years. In Q4, Boeing reported a 15% drop in revenue to $15.3 billion, topping views for $15.2 billion.

Boeing deliveries fell 25% to 59 in Q4. For all of 2020, deliveries fell to 157 from 380 in 2019 and 806 in 2018. Q4 saw a cash outflow of $4.27 billion, with 2020 overall seeing a nearly $12 billion cash drain.


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Boeing Stock Technical Analysis

BA stock has been on a wild ride due to the Boeing 737 Max fallout and the Covid-19 pandemic.

Boeing stock broke out of a cup base with a 244.18 buy point on March 10, according to MarketSmith chart analysis, then just two days later climbed above the buy zone, which maxes out at 256.39. It’s since fallen and completed a “round trip,” erasing those gains, signaling that investors should close out their positions.

In addition, Boeing stock is showing weak CAN SLIM fundamental metrics, including a dismal 36 Composite Rating out of a best-possible 99 and an extremely weak 5 EPS rating.

Shares have an Accumulation/Distribution rating of B, which indicates that institutional investors are buying the stock.


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Defense, Space Segments

While Boeing’s commercial business faces some headwinds, its defense business is starting to see some positive trends thanks to foreign military sales. The Australian Navy and Air Force ordered 11 more P-8 maritime surveillance aircraft on April 1.

The United Arab Emirates will receive Boeing EA-18G Growler electronic warfare planes as part of a major U.S. arms deal after normalizing ties with Israel last year. Improving ties between Israel and other U.S. allies in the Mideast could unlock more deals.

The U.S. Air Force awarded Boeing a $2.1 billion contract on Jan. 20 for 15 more tankers, with the total under contract now at 94. But the company recorded a $275 million charge for the tanker in Q4 due to “production inefficiencies including impacts of COVID-19 disruption.” Overall charges now total more than $5 billion.

Boeing Super Hornet
(Boeing)

Boeing also produces the F/A-18 Super Hornet for the U.S. Navy and foreign militaries. In July 2020 Boeing received the first order for what could be a $23 billion contract to build F-15EX fighters for the Air Force.

In late March, Boeing lost out on a key contract to build the Missile Defense Agency’s Next-Generation Interceptor to Lockheed Martin (LMT) and Northrop Grumman (NOC.) The system is designed to protect the U.S. against intercontinental ballistic missile threats. The agency canceled the Redesigned Kill Vehicle program last year over technological issues.

Meanwhile, the company’s space business suffered a setback Dec. 20, 2019, when its Starliner capsule failed to reach the proper orbit for docking with the International Space Station. In February 2020, NASA revealed that a previously undisclosed software issue was discovered during the Starliner’s flight. That problem could have destroyed the space capsule.

Boeing now sees a launch in August or September after scrapping an April 2 launch date as a winter storm in Houston delayed software testing.

A NASA inspector general report also flagged continued setbacks in Boeing’s Space Launch System rocket, which is a key part of NASA’s ambitious Artemis mission. As delays continue, the inspector general estimated in April that SLS costs will total $28.3 billion through 2025, up from a forecast of $18.3 billion estimated in 2020.

On Jan. 16, NASA cut short a hot-fire test of the Space Launch System’s core stage, but successfully retested the system on March 18.


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Boeing Stock Eyes Exit From Survival Mode

To help preserve cash, Boeing suspended its dividend on March 20, 2020, and extended its pause on share buybacks until further notice.

Management has said paying down debt is a priority before it can resume payouts. On Feb. 2, Boeing sold $9.8 billion to repay a portion of the $13.8 billion loan it drew down at the start of the pandemic. The aerospace giant is also considering a stock sale to help pay down debt accrued by the 737 Max grounding.

The order book is seeing new life again too. Ireland’s Ryanair, Alaskan Airlines (ALK), United Airlines, Southwest and Dubai Aerospace Enterprise have ordered more 737 Max jets. Boeing also confirmed a deal with investment firm 777 Partners, which will buy 24 737 Max jets with options for another 60 aircraft.

February was the first month that orders topped cancellations in more than a year and the momentum continued into March.

But the company is still coming out of a deep hole. Boeing saw 737 Max orders shrink by over 1,040 in 2020 as nearly 600 have been removed from the backlog and nearly 450 have been canceled by carriers.

Boeing 777 9X
(Boeing)

Even with the new orders, Boeing doesn’t expect to increase 737 production to 31 per month until the beginning of 2022, later than a prior estimate of 31 per month in 2021. The 787 production rate and the 777/777X combined production rates were also cut.

As production slows, CEO Dave Calhoun told employees in October the company plans to further reduce staffing to 130,000 by the end of 2021. That represents a cut of about 19% from the 160,000 level at the start of 2020, and deeper than a prior view for a 10% cut.

Boeing 737 Max

Problems with the Maneuvering Characteristics Augmentation System automated flight-control software contributed to the Ethiopian Air crash in March 2019 as well as the October 2018 Lion Air crash. Combined, the two crashes killed 346 people.

What was expected to be a temporary blip saw the 737 Max grounded for 20 months. The FAA approved the jet’s return to service on Nov. 18 2020 and the European Union and Canadian regulators followed in early 2021.

Boeing 737 MAX
(Boeing)

In December, Brazil’s Gol Linhas Aereas Inteligentes (GOL)  and American Airlines (AAL) resumed 737 Max commercial flights. On Feb. 11, United resumed 737 Max flights. Meanwhile, Southwest Airlines began passenger service on March 11.

The grounding, suspension of deliveries, and production halt have been costly. Combined with charges booked last year, 737 Max-related costs now approach $20 billion.


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Boeing 737 Max, 787 Probes

On Jan. 7, Boeing agreed to pay over $2.5 billion to settle Justice Department fraud charges related to its 737 Max. The company was charged with one count of conspiracy to defraud the U.S. related to the plane’s certification.

Concluding an 18-month probe in September 2020, the final House Committee on Transportation and Infrastructure’s 245-page report found that “Boeing failed in its design and development of the MAX, and the FAA failed in its oversight of Boeing and its certification of the aircraft.”

On Dec. 22, Congress passed legislation to stiffen the FAA’s aircraft certification process and prevent the kind of crashes seen with the 737 Max.


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Is Boeing Stock A Buy?

Boeing 737 Max jets are flying again, but Covid-19 is still hitting global air traffic, depressing already weakened demand for widebody planes like the 787 and the 777X.

The approval of Covid-19 vaccines helped the stock but earnings will likely remain under pressure for a while as the International Air Transport Association, a trade group, doesn’t see air travel rebounding to 2019 levels until 2024.

BA stock has performed a “roundtrip” flashing a sell signal to investors.

Bottom line: Boeing stock is not a buy. Investors looking for more stocks to buy can find companies with stronger, more-consistent earnings growth and better stock technicals.

Follow Gillian Rich on Twitter @IBD_GRich for aviation news and more.

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