{"id":59412,"date":"2024-05-05T06:00:37","date_gmt":"2024-05-05T10:00:37","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=59412"},"modified":"2024-05-03T11:26:33","modified_gmt":"2024-05-03T15:26:33","slug":"is-boeing-ba-a-recovery-play-evaluating-upside-potential-and-risks","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2024\/05\/is-boeing-ba-a-recovery-play-evaluating-upside-potential-and-risks\/","title":{"rendered":"Is Boeing (BA) a Recovery Play? Evaluating Upside Potential and Risks"},"content":{"rendered":"<p><a href=\"https:\/\/quotes.ino.com\/charting\/?s=NYSE_BA\"><span style=\"font-weight: 400;\">The Boeing Company (BA)<\/span><\/a><span style=\"font-weight: 400;\">, a stalwart in aircraft manufacturing and services, has faced a cascade of challenges so far this year. Just as the dust was settling on its mid-air blowout incident in January, another report emerged of a plane having mechanical failures, though this one is somewhat different from the reports we\u2019ve already heard.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This time, it's a Delta flight from New York to Los Angeles, reporting a problem with the emergency slide on the right wing and a strange sound. While this isn't good news for Boeing, given that the plane is quite old (flying since 1990), it's not expected to cause too much trouble either.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Now, let\u2019s evaluate the upside potential and risks associated with investing in BA, considering factors like financials, growth prospects, valuation, and industry dynamics.<\/span><\/p>\n<p><b>A Tumultuous Start to 2024<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Boeing and its aircraft manufacturer have faced significant media attention since the<\/span><a href=\"https:\/\/www.fox10phoenix.com\/news\/boeing-a-look-at-recent-incidents-involving-planes-that-they-made\"> <span style=\"font-weight: 400;\">start of 2024<\/span><\/a><span style=\"font-weight: 400;\">, with a series of incidents prompting investigations. In January, an Alaska Airlines Boeing 737 MAX 9 had to make an emergency landing in Portland, Oregon, because a part of the plane's fuselage blew out.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Although there were no casualties, the U.S. National Transportation Safety Board (NTSB) investigation revealed that the door was not properly secured due to<\/span><a href=\"https:\/\/www.cnbc.com\/2024\/02\/06\/ntsb-boeing-737-max-9-report-bolts-appeared-missing-from-alaska-air-plane.html\"> <span style=\"font-weight: 400;\">missing bolts<\/span><\/a><span style=\"font-weight: 400;\">. As a result, it led to a<\/span><a href=\"https:\/\/www.fox10phoenix.com\/news\/alaska-airlines-boeing-737-emergency-landing-plane-window-blows-out\"> <span style=\"font-weight: 400;\">grounding of its 737-9 MAX fleet<\/span><\/a><span style=\"font-weight: 400;\">, increased scrutiny of the plane maker\u2019s 737 production and safety processes, and decreased overall plane production.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Later in January, an ANA (All Nippon Airways) Boeing 737-800 had to return to Japan after a crack was found on its cockpit window during flight.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">On February 21, a United Airlines Boeing 757-200 made an emergency landing in Denver due to wing damage. Furthermore, in March, a United Airlines Boeing 777-200 had to land in Los Angeles after a tire fell off following take-off, damaging vehicles below.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Other incidents include a brief rudder control failure on a Boeing 737 Max in New Jersey, a United Airlines Boeing 737 MAX 8 going off the taxiway in Houston, and a Boeing 737 in Medford, Oregon, being found missing a panel.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Further, on March 18, an Alaska Airlines Boeing 737 had a cracked windshield upon landing in Portland.<\/span><\/p>\n<p><b>Can Boeing Be Trusted Again?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Such incidents have dealt a significant blow to the company, raising concerns about BA\u2019s approach of prioritizing profits over safety. Particularly, the Alaska Airlines incident led to tighter regulatory scrutiny, financial implications, and demands for compensation, potentially hampering Boeing's growth trajectory.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, the company has taken steps to improve quality, including expanding inspections, changing how work is performed, increasing training, and soliciting more feedback from employees.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cWe are absolutely committed to doing everything we can to make certain our regulators, customers, employees and the flying public are 100 percent confident in Boeing,\u201d Dave Calhoun, Boeing\u2019s chief executive officer, said in a<\/span><a href=\"https:\/\/s2.q4cdn.com\/661678649\/files\/doc_financials\/2024\/q1\/1Q24-Earnings-Call-Transcript.pdf\"> <span style=\"font-weight: 400;\">letter<\/span><\/a><span style=\"font-weight: 400;\"> to employees last week.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, the company is also in talks to acquire<\/span><a href=\"https:\/\/quotes.ino.com\/charting\/?s=NYSE_SPR\"> <span style=\"font-weight: 400;\">Spirit AeroSystems Holdings, Inc. (SPR)<\/span><\/a><span style=\"font-weight: 400;\">, a troubled supplier that builds the body of the Max jet, which had been a part of Boeing until it was spun out two decades ago. This<\/span><a href=\"https:\/\/news.yahoo.com\/boeing-talks-buy-spirit-aerosystems-170012439.html\"> <span style=\"font-weight: 400;\">potential acquisition<\/span><\/a><span style=\"font-weight: 400;\"> reflects Boeing's commitment to streamlining its supply chain, strengthening production capabilities, and exerting greater control over supplier policies and practices.<\/span><\/p>\n<p><b>Disappointing Financial Performance<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Despite a rocky start this year, Boeing reported a slightly better-than-feared quarter but continued to burn cash (almost $4 billion) as it tried to stabilize production. With fewer planes exiting factories in the last three months, Boeing's revenue suffered a significant blow in the first quarter.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For the quarter that ended March 31, 2023, the company posted a 7.5% year-over-year decline in its total revenues to $16.57 billion. Its non-GAAP core operating loss came in at $388 million and $1.13 per share, respectively. Also, BA\u2019s net loss for the quarter amounted to $355 million, which was not as steep as analysts had expected, and it was smaller than the $425 million loss in the prior year\u2019s period.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Deliveries of Boeing's commercial planes declined by 36% year-on-year in the first three months of 2024. The airline company also reported an operating cash outflow of $3.36 billion, compared with $318 million cash outflow in the last year\u2019s period. Also, it posted a negative free cash flow of $3.92 billion, compared with a loss of $787 million a year ago. Further, the total company backlog grew to $529 billion, including over 5,600 commercial airplanes.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">CEO Dave Calhoun, emphasizing the \u2018tough moment,\u2019 said, \u201cLower deliveries can be difficult for our customers and for our financials. But safety and quality must and will come above all else.\u201d<\/span><\/p>\n<p><b>Mixed Analyst Expectations<\/b><\/p>\n<p><span style=\"font-weight: 400;\">As Boeing continues to face substantial expenses in resolving identified issues, compensating affected parties, and handling potential legal matters, CFO Brian West believes the company will have a \u201csizable use of cash\u201d in the second quarter.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Analysts expect BA\u2019s revenue for the fiscal year (ending December 2024) to increase 4.2% year-over-year to $81.09 billion. However, the company is expected to report a loss per share of $0.55. For the ongoing quarter ending June 2024, its revenue is estimated to decline 3.6% year-over-year to $19.05 billion.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, Street expects the company\u2019s revenue for the next quarter (ending September 30, 2024) to increase by 18.5% year-over-year to $21.46 billion, while its earnings per share is expected to be at $0.41.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">During this challenging period, Calhoun stated, \u201cWe are utilizing this period, challenging as it may be, to intentionally reduce the pace of operations, strengthen the supply chain, enhance our factory operations, and position Boeing to consistently deliver the reliability and quality our customers expect in the long run.\u201d<\/span><\/p>\n<p><b>Bottom Line<\/b><\/p>\n<p><span style=\"font-weight: 400;\">BA\u2019s ongoing challenges, including numerous safety issues, production halts, and delayed deliveries, have put the firm in a complex situation where forecasting future demand has become increasingly precarious. These headwinds are significantly impacting its airline customer base, leading to declining profitability, cash flow problems, and inventory issues that might linger for a while.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Despite these short-term hurdles, the company is committed to strengthening its market position, achieving long-term growth outlooks, and improving predictability for both customers and investors. But this process is going to take some time and concerted effort.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Ultimately, the market's confidence in Boeing depends on its ability to bounce back from its current challenges. However, the question remains: can the recovery be achieved soon?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Regarding price performance, the stock has plunged nearly 15% over the past three months and more than 33% year-to-date.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, the stock seems pretty pricey at the moment. In terms of forward P\/E, BA is currently trading at 142.59x, which is substantially higher than the industry average of 23.99x. The stock\u2019s forward EV\/Sales of 1.81x is 2.9% higher than the industry average of 1.76x. Also, its forward EV\/EBITDA of 33.92x compares to the industry average of 11.30x.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Besides, BA\u2019s trailing-12-month gross profit and levered FCF margins of 11.48% and 4.01% are 62.7% and 38.9% lower than the industry averages of 30.80% and 6.56%, respectively. Also, its net income margin of negative 2.81% compares to the industry average of 5.86%.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Recently, Argus Research downgraded their outlook for BA stock from<\/span><a href=\"https:\/\/fintel.io\/news\/argus-research-downgrades-boeing-ba-858\"> <span style=\"font-weight: 400;\">Buy to Hold<\/span><\/a><span style=\"font-weight: 400;\">, estimating a target price of $243.01, indicating a 40.1% upside. In addition, Northcoast Research downgraded the stock from<\/span><a href=\"https:\/\/fintel.io\/news\/northcoast-research-downgrades-boeing-ba-518\"> <span style=\"font-weight: 400;\">Neutral to Sell<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Given these factors, we believe waiting for a better entry point in this stock could be wise now.<\/span><\/p>\n<!-- AddThis Advanced Settings generic via filter on the_content --><!-- AddThis Share Buttons generic via filter on the_content -->","protected":false},"excerpt":{"rendered":"<p>The Boeing Company (BA), a stalwart in aircraft manufacturing and services, has faced a cascade of challenges so far this year. Just as the dust was settling on its mid-air blowout incident in January, another report emerged of a plane having mechanical failures, though this one is somewhat different from the reports we\u2019ve already heard. [&hellip;]<!-- AddThis Advanced Settings generic via filter on get_the_excerpt --><!-- AddThis Share Buttons generic via filter on get_the_excerpt --><\/p>\n","protected":false},"author":41,"featured_media":57924,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[34081,34084,33757,34083,34085,34080,34082,4827,34086,32192],"class_list":["post-59412","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-buy-to-hold","tag-grounding-of-its-737-9-max-fleet","tag-inc-spr","tag-letter","tag-missing-bolts","tag-neutral-to-sell","tag-potential-acquisition","tag-spirit-aerosystems-holdings","tag-start-of-2024","tag-the-boeing-company-ba"],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v23.4 (Yoast SEO v23.6) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Is Boeing (BA) a Recovery Play? 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