Is Boeing Stock A Buy As 787 Dreamliner Production Issues Mount?
Boeing (BA) has faced a turbulent two years. Now as orders have picked up, Boeing faces more production issues with its 787 Dreamliner. Is Boeing stock a good buy now? Investors should look at the aerospace giant’s fundamentals and the BA stock chart.
In the latest issue for the 787, some titanium parts on Dreamliners built over the last three years are weaker than they should be, sources told the Wall Street Journal.
That’s just the latest in a string of problems for the widebody jet.
A prior issue was found in the forward pressure bulkhead at the front of the 787, involving the skin of the aircraft. 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.
Boeing Stock Fundamental Analysis
The Dow Jones giant reported Q2 earnings of 40 cents per share up from a loss of $4.79 per share in the year-ago quarter, its first profit since 2019. Analysts polled by FactSet saw per-share losses narrowing to 83 cents. Revenue jumped 44% to $17 billion, also beating expectations.
The commercial backlog grew to 4,155 airplanes valued at $285 billion, up from over 4,000 airplanes valued at $283 billion in Q1, as more orders rolled in.
Boeing recorded 12 net orders of its 737 Max and 22 net orders overall in September, the aerospace giant announced on Oct. 12. It delivered 26 737 Max jets last month and 36 overall.
For the third quarter, Boeing delivered 85 commercial aircraft. But it did not deliver any 787 Dreamliners amid the production problems.
Boeing will report full Q3 results before the market opens on Oct. 27. FactSet analysts expect Boeing to swing to a profit of 4 cents per share in Q3, from a loss of $1.39 per share a year ago. Revenue is seen jumping 23% to $17.4 billion.
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.
Boeing’s earnings-per-share growth has averaged 0% over the past three years, according to IBD Stock Checkup. Revenue has contracted by 20% on average over the past three years.
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 into a cup base with a 258.50 entry point, using the June 2 high. Boeing stock could also be viewed as a double bottom base with a 241.25 entry point, starting in early June and having an Aug. 12 midpoint serving as the middle of the W. But it is now around the lows of the stock pattern.
BA stock keeps bouncing around its 50-day line and faces further resistance at its 200-day line.
Boeing stock is showing weak CAN SLIM fundamental metrics, including a poor 47 Composite Rating out of a best-possible 99 and a 51 EPS rating.
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. Germany became the eighth customer, ordering five P-8s in July. 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 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.
But the company’s $3.9 billion Air Force One contract has thrust some issues at Boeing into the spotlight yet again.
The company is investigating empty bottles of tequila that were found in one of the aircraft in September.
The color scheme of the jets was a contentious point during Donald Trump’s presidency. He proposed a red, white and blue livery design for the aircraft to replace John Kennedy’s iconic light blue design. But Air Force officials said Sept. 21 that Trump’s design was not finalized.
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 expected to redo the test flight on July 30. But the test flight was delayed indefinitely as the company looks for the cause of a technical issue with a valve in the reaction control system.
In early October, NASA moved astronauts off a Starliner mission and on to a SpaceX Crew Dragon mission to the ISS as delays continue.
Boeing 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.
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, 2020, 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.
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.
Even with new 737 Max orders rising, Boeing doesn’t expect to increase 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.
Boeing faces more pressure from Dubai airline Emirates over the 777X delays. Emirates President Tim Clark called for “another grown-up conversation” with Boeing on Oct. 5.
Boeing 737 Max
Problems with the Maneuvering Characteristics Augmentation System (MCAS) 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.
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. India approved the jet’s return to service in late August.
China has been slow to recertify the 737 Max. But test flights started in early August.
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 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.
Boeing 737 Max Probes
Mark Forkner, a Boeing 737 Max test pilot, is facing federal criminal charges that he misled regulators over safety issues regarding the MCAS system, the Wall Street Journal reported Sept. 16.
Forkner reportedly told his coworkers that the MCAS system was “egregious.” But told regulators that it was safe.
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, 2020, Congress passed legislation to stiffen the FAA’s aircraft certification process and prevent the kind of crashes seen with the 737 Max.
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” but remains under the key 200-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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