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Has Boeing (BA) Stock Hit Bottom? Looking for the Silver Lining

support@smarteranalyst.com (Ben Mahaney)

Boeing (BA) had a very rough quarter due to ongoing issues related to the Boeing 737 MAX grounding following two incidences where the planes crashed. The company reported revenue and dil. EPS of $22.9 billion and $3.16 respectively. The company’s results missed analyst consensus estimates of $23.51 billion and $3.33 dil. EPS for Q1’19. The revenue and earnings miss were driven by lower Boeing 737 deliveries, and timing of receipts versus expenditures.

The company didn’t offer financial guidance for next quarter financial results, and without financial guidance, it’s difficult to anticipate next quarter results. According to Boeing, “The previously issued 2019 financial guidance does not reflect 737 MAX impacts. Due to the uncertainty of the timing and conditions surrounding return to service of the 737 MAX fleet, new guidance will be issued at a future date.”

Lack of financial guidance along with both a revenue and earnings miss should translate to weak stock performance, however, the negative reports of the 737 MAX, and delay of deliveries were already priced-into the stock, as it’s down nearly 16% year-to-date.

Despite some weak commentary tied to the 737, order backlog remained healthy with 5,600 airplanes valued at $399 billion. In Q1’19, Boeing also disclosed that they delivered 149 airplanes versus 184 airplanes from Q1’18, representing a 19% drop in total deliveries. Dennis Muilenburg, CEO and Chairman mentioned, “across the company, we are focused on safety, returning the 737 MAX to service, and earning and re-earning the trust and confidence of customers, regulators and the flying public.”

Given the massive order backlog, and the rate at which Boeing delivers planes the business still remains fundamentally sound, as it would take several years for the company to get anywhere near close to delivering 5,600 airplanes cumulatively. So, the short-term hiccup in terms of deliveries and financial results, isn’t reflective of the long-term narrative where passenger airline travel will continue to trend higher, thus expanding the aerospace opportunity for Boeing.

Not to mention, passenger airlines wouldn’t want to cancel their orders, because it just means that it will take an extremely long amount of time for Boeing to produce airplanes for them, because they would fall further back into the delivery queue.

Boeing mentioned that the issues to the 737 MAX were related to software, “Boeing is making steady progress on the path to final certification for a software update for the 737 MAX, with over 135 test and production flights of the software update complete. The company continues to work closely with global regulators and our airline partners to comprehensively test the software and finalize a robust package of training and educational resources.”

Given Boeing’s track-record, and their ability to identify the problem, it’s very likely that the issues will be resolved, and production of the 737 MAX will continue. Although, the negative press associated with the company will raise suspicions among passengers related to safety, it’s unlikely to alter consumer behavior by much.

Bottom line

Boeing won’t experience long-term repercussions from the grounding of the 737 MAX, as they work out the technical issues. They have a number of other planes they can market more aggressively in the meantime, such as the 747, 787, 777X, and so forth. When the 737 MAX returns to service, and deliveries resume, Boeing’s results will improve, and the stock price will also recover. Anticipating when this will occur is somewhat difficult, but it does create an opportunity for those who see the recent pullback as an opportunity to buy on the dip, and then capitalize on the eventual announcement of the 737 MAX return to service and continued production.

Disclosure: The author has no position in Boeing stock.


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