Is Boeing Stock A Buy Ahead Of Earnings?

Boeing (BA) is seeing orders of its 737 Max jet pick up again and is reportedly drawing up plans to sharply boost the output of the narrow-body jet next year. But is Boeing stock a good buy now? Investors should look at the aerospace giant’s fundamentals and the BA stock chart.


Southwest Airlines (LUV), the top 737 customer, announced on June 8 that it would buy 34 737 Max jets for delivery in 2022. The carrier now has 234 737 Max aircraft on order in total and says it could need up to 500 new aircraft as it expands U.S. service.

Boeing saw 219 gross aircraft orders in June, outpacing cancellations for the fifth straight month. The orders included 200 737 Max jets.

As orders rise Boeing is outlining plans to increase 737 Max output to as many as 42 jets a month in fall 2022, industry sources told Reuters. Boeing has publicly said it plans to boost production steadily from its current lower production rate to hit 31 jets per month in March 2022.

The planned output surge comes as travel demand rises. U.S. carriers are opening up new domestic routes and gearing up for a return to expanded international service.

Boeing Stock Fundamental Analysis

Boeing delivered 45 planes last month and 75 for all of Q2, up from 50 a year-ago in Q2. Boeing will report full Q2 results before the market opens on July 28.

It’s been a turbulent two years for Boeing and the company has recorded losses in the last six quarters. Per-share losses narrowed to $1.53 in Q1 from $1.70 a year ago but missed views for $1.17. Revenue fell 10% to $15.22 billion, beating views for $14.4 billion.

Boeing didn’t record a charge on the KC-46 tanker program, which has been an earnings headwind for years. But the company booked a $318 million pre-tax charge on the Air Force One program due to Covid-19 and performance issues at a supplier.

Cash outflow improved to $3.7 billion from $4.7 billion. Total backlog ticked up to $364 billion from $363 billion in Q4 as Boeing added 76 net commercial airline orders.

Boeing’s earnings-per-share growth has averaged 0% over the past three years, according to IBD Stock Checkup. Revenue has contracted by 19% on average over the past three years.

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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.

But it later completed a “round trip,” erasing those gains, signaling that investors should close out their positions. It then fell further, hitting the loss-cutting sell range.

BA stock is now consolidating with a 278.67 entry point.

Boeing stock is showing weak CAN SLIM fundamental metrics, including a dismal 27 Composite Rating out of a best-possible 99 and an extremely weak 13 EPS rating.

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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 total more than $5 billion.

Boeing Super Hornet

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 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 over a software issue that could have destroyed the space capsule. Boeing expects to redo the test flight on July 30.

The company is also facing continued delays with its Space Launch System rocket, a key part of NASA’s ambitious Artemis mission. 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.

On April 20, CEO Jim Calhoun said the company doesn’t plan to bring back the Boeing stock dividend in the near term, adding that cash flow should turn positive again in the near- to medium-term future.

Management has said paying down debt is a priority before it can resume payouts. The aerospace giant is also considering a stock sale to help pay down debt accrued by the 737 Max grounding.

Boeing 777 9X

The order book is seeing new life again too. Ireland’s Ryanair, Alaskan Airlines (ALK), United Airlines (UAL), Southwest Airlines (LUV) 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. On May 25, Boeing announced that SMBC Aviation Capital, another leasing company, ordered 14 737 Max jets.

While orders are picking up, Boeing is still dealing with some 737 Max issues. On May 29, Boeing agreed to pay $17 million in fines as part of a Federal Aviation Administration settlement over installing unapproved sensors on 737 Max and 737 Next Generation aircraft.

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

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.

Even with the new orders, Boeing doesn’t expect to increase 737 Max 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.

The 787 production rate was further cut after a new issue was found in the forward pressure bulkhead at the front of the 787, involving the skin of the aircraft, according to reports. The Dow Jones aviation giant expects to deliver less than half of the Dreamliners in its inventory this year. That’s down from an earlier estimate of nearly all its completed planes.

As production slows, 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

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.

China has been slow to recertify the 737 Max. But Chinese officials are reportedly open to test flights and Boeing is ready to send 35 pilots and engineers to China at the end of July to help regulators.

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.

Just as 737 Max flights began taking off, a wiring issue, which was disclosed on April 7, prompting a pause in 737 Max deliveries. Boeing announced May 13 that the Federal Aviation Administration approved its fixes for the wiring issue and sources told Reuters that the aerospace giant has resumed deliveries of the jet on May 19.

It also marked the second time deliveries were halted and resumed, after a second fatal crash in 2019 triggered an earlier pause.

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Boeing 737 Max, 787 Probes

House Democrats are asking for FAA inspection records from Boeing’s 737 and 787 Dreamliner production lines as well as audit results and supervision records. The requests come after production issues were found on both jets.

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 demand for widebody planes like the 787 and the 777X remains weak.

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 is consolidating after completing a “round trip” and shares have found support from the key 50-day line.

Bottom line: Boeing stock is not yet 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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