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Poor Defense Deliveries to Hurt Boeing's (BA) Q4 Earnings

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Zacks Equity Research
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The Boeing Company’s BA Defense, Space & Security (BDS) segment is likely to have recorded dismal revenue performance in fourth-quarter 2020, courtesy of poor deliveries of the company’s varied defense products. However, the quarterly backlog count is expected to reflect solid figures.  

Boeing’s fourth-quarter 2020 results are scheduled to be released on Jan 27.

Click here to know how the company’s overall Q4 performance is expected to be.

Steady Order Flow to Aid Backlog

With the U.S. administration spending significantly on the nation’s defense for the past couple of years, Boeing’s defense and space unit has been witnessing solid order flow from the Pentagon, NASA and Congress for its varied products. This, in turn, has been consistently boosting BDS unit’s backlogs.

Amid the uncertainties caused by the COVID-19 pandemic, the defense market remains relatively stable. Boeing continues to witness solid, global demand for its major combat programs, which translated into an overall order value of $5 billion for the BDS unit in the third quarter. We expect the upcoming results to reflect a similar order count for the BDS unit, which in turn should duly get reflected in backlog growth.

The Boeing Company Price and EPS Surprise

The Boeing Company Price and EPS Surprise
The Boeing Company Price and EPS Surprise

The Boeing Company price-eps-surprise | The Boeing Company Quote

Poor Deliveries Hurt Q4 Performance

Boeing’s fourth-quarter 2020 defense delivery figures reflected a significant plunge of 40.4% from the year-ago period.

In the quarter, its defense deliveries totaled 34, down from 57 in the year-ago period. Such dismal delivery figures are expected to have brought down the defense segment’s revenues in the soon-to-be-reported quarter. Such a bleak delivery figure can once again be attributed to coronavirus-led business restrictions that reduced and, in some cases, paused shipment activities within the United States as well as across borders.

Other Headwinds

COVID-19 induced business disruptions and production inefficiencies have been hampering the BDS unit’s operating margin in recent times, a trend we expect the company to have witnessed during the fourth quarter as well. Such poor operating margin might have dragged down this segment’s earnings.

Further, a number of its suppliers have suspended or otherwise reduced their operations, and the company is experiencing some supply chain shortages, in recent times on account of the pandemic’s impacts. We expect fourth-quarter results to reflect the impacts of these adverse trends.

What the Zacks Model Unveils

According to the Zacks model, the combination of two key ingredients — a positive Earnings ESP and a Zacks Rank #3 (Hold) or better — increases the odds of an earnings surprise.

Boeing has an Earnings ESP of 0.00% and a Zacks Rank #3. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stock to Consider

Here are some defense companies you may want to consider as these have the right combination of elements to post an earnings beat in their upcoming releases:

Leidos Holdings LDOS has an Earnings ESP of +6.79% and a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright CW has an Earnings ESP of +1.50% and a Zacks Rank of 3.

Triumph Group, Inc. TGI has an Earnings ESP of +7.14% and a Zacks Rank of 2.

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