Is Boeing Stock A Buy As CDC Says Vaccinated People Can Travel?
Boeing (BA) and other travel-related companies rallied after U.S. health officials said fully vaccinated people can travel within the U.S. Is Boeing stock a good buy now? Investors should look at the aerospace giant’s fundamentals and the BA stock chart.
On April 2, the Centers for Disease Control and Prevention said fully vaccinated people don’t need Covid-19 testing or to quarantine after traveling as long as they continue to wear masks while traveling and practice social distancing and other Covid-19 mitigation strategies.
The news sent travel stocks higher as Americans hope for a semi-normal travel summer. The Transportation Security Administration has seen over 1 million travelers come through its checkpoints daily since March 11.
Airlines have also increased aircraft orders in recent months as the 737 Max returns to service.
Boeing Stock Fundamental Analysis
Boeing earnings-per-share growth has averaged 0% over the past three years, according to IBD Stock Checkup. In the fourth quarter, Boeing reported a whopping loss of $15.25 per share, far worse than consensus views for a loss of $1.78 and a year-ago loss of $2.33 a share, as it booked $8.3 billion in pre-tax charges.
The biggest Q4 charge was a $6.5 billion loss on its 777X program, as the first delivery has slipped to late 2023 from a 2022 timeline given in July.
Revenue has contracted by 17% on average over the past three years. In Q4, Boeing reported a 15% drop in revenue to $15.3 billion, topping views for $15.2 billion.
Boeing deliveries fell 25% to 59 in Q4. For all of 2020, deliveries fell to 157 from 380 in 2019 and 806 in 2018. Q4 saw a cash outflow of $4.27 billion, with 2020 overall seeing a nearly $12 billion cash drain.
Despite the massive cash outflow, Boeing still expects to be cash flow positive in 2022 on continued improvement in its 737 Max program.
Boeing Stock Technical Analysis
BA stock has been on a wild ride due to the Boeing 737 Max fallout and the Covid-19 pandemic.
Shares bounced above their 50-day and 200-day lines on positive Covid-19 vaccine news, according to MarketSmith chart analysis, and then gapped higher after the FAA approved the 737 Max’s return to service.
Boeing stock broke out of a cup base with a 244.18 buy point on March 10, then just two days later climbed above the buy zone, which maxes out at 256.39.
The stock dipped back into buy range, then climbed above it again after the new CDC guidance on air travel. The relative strength line, which tracks BA stock vs. the S&P 500 index, has also spiked.
Boeing stock’s CAN SLIM fundamental metrics include a dismal 34 Composite Rating out of a best-possible 99 and an extremely weak 5 EPS rating.
Shares also have an Accumulation/Distribution rating of B, which indicates that institutional investors are buying the stock.
Defense, Space Segments
Boeing’s defense business is also 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 now total more than $5 billion.
Boeing also produces the F/A-18 Super Hornet for the U.S. Navy and foreign militaries. But the Navy wants to cut short the purchase of upgraded Super Hornets. Instead, it wants to shift the money to its own Next Generation Air Dominance platform and other key aviation investments. However, 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 (LMT) 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. In February 2020, NASA revealed that a previously undisclosed software issue was discovered during the Starliner’s flight. That problem could have destroyed the space capsule.
Boeing scheduled another uncrewed test flight for no earlier than April 2, but has since postponed that date as the winter storm in Houston delayed software testing.
A NASA inspector general report also flagged continued setbacks in Boeing’s Space Launch System rocket. As delays continue, NASA’s associate administrator for human spaceflight said in August 2020 that the SLS would cost $9.1 billion, or 30% more than previous estimates. Meanwhile, NASA’s inspector general estimated Feb. 10 that SLS costs will total $27 billion through 2025, up from a forecast of $18.3 billion estimated in 2020.
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.
Management has said paying down debt is a priority before it can resume payouts. On Feb. 2, Boeing sold $9.8 billion to repay a portion of the $13.8 billion loan it drew down at the start of the pandemic. The aerospace giant is also considering a stock sale to help pay down debt accrued by the 737 Max grounding.
The order book is seeing new life again too. In December, Ireland’s Ryanair announced an order for 75 Boeing 737 Max planes, the largest order since the plane was grounded last year. Alaskan Airlines (ALK) followed with an agreement to buy 23 more 737 Max jets, the largest U.S. order for the jet since its grounding. In late March, Southwest Airlines (LUV) said it would add 100 orders for the Boeing 737 Max 7 to an existing order. On March 12, Boeing also confirmed a deal with investment firm 777 Partners, which will buy 24 737 Max jets with options for another 60 aircraft.
Boeing secured 82 new orders in February, including 25 Boeing 737 Max jets ordered by United Airlines and 14 737 Max planes for an unidentified customer. Boeing recorded 51 cancellations, which included Singapore Airlines’ cancellation for 19 787 Dreamliners and an order for 11 777X planes. February was the first month that orders topped cancellations in more than a year.
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.
After halting 737 Max production for a few months in 2020, Boeing doesn’t expect to increase 737 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 will be reduced to five per month in 2021 vs. 10 now and a prior estimate of seven per month by 2022. The company is also consolidating 787 production into one plant in South Carolina in March, earlier than expected.
Boeing resumed 787 Dreamliner deliveries in late March, after deliveries were halted for five months to correct small structural issues.
The 777/777X combined production rate will drop to two per month in 2021, down from a prior view of three, with the 777X’s first delivery targeted for a year later than planned at 2022.
As production slows, CEO Dave 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.
While the 737 Max is back back in service, now another Boeing jet is grounded. A Pratt & Whitney 4000-112 engine on a United Boeing 777 bound for Hawaii failed shortly after takeoff from Denver on Feb. 20. United, All Nippon Airways and Japan Airlines have grounded their Boeing 777s with the Pratt & Whitney engine configuration.
The Raytheon Technologies (RTX) engine unit is under additional scrutiny after a Pratt & Whitney PW4000 exploded on a Boeing 747 cargo jet Feb. 20 over the Netherlands.
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.
The European Union Aviation Safety Agency gave a final airworthiness directive during the week at the end of January. Canadian regulators approved design changes on Dec. 16 and gave it final approval to fly in Canada in January. China has yet to approve the jet for service.
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.
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.
Boeing 737 Max, 787 Probes
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.
Is Boeing Stock A Buy?
Boeing 737 Max jets are flying again, but Covid-19 is still hitting global air traffic, depressing already weakened demand for widebody planes like the 787 and the 777X.
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 now extended out of buy range after breaking out a cup base in mid-March. Shares have been outperforming the broader market, but fundamentals like earnings have yet to rebound.
Bottom line: Boeing stock is not a buy anymore. 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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