2020 cannot end soon enough for Boeing (BA). The A&D giant had enough issues to contend with before the pandemic’s onset, but Covid-19’s decimation of the airline industry has almost sent Boeing over the edge.
However, “almost” might just be the key word here. As despite another awful quarterly financial report, Boeing’s Q3 results weren’t as bad as expected, and certainly an improvement on Q2’s bottom scraping numbers.
BA posted beats on both the top and bottom line and improved its FCF (free cash flow) from the previous quarter’s negative $5.6 billion to negative FCF of $5.08 billion.
Despite the improvement, Boeing’s prior goal to turn FCF positive in 2021 now appears unlikely.
With so much uncertainty surrounding the aviation industry, J.P. Morgan analyst Seth Seifman ponders this exact issue.
“The resurgence of COVID-19 and continued softness in international travel have dampened expectations for deliveries and cash flow in 2021,” the 4-star analyst said. “BA still expects cash flow to improve next year, but there is a wide range of outcomes between a modest outflow next year and our ~$18b of 2020 cash burn. A deteriorating outlook for 737 MAXs deliveries in 2021 is contributing to reduced expectations.”
Boeing’s recovery is dependent on the newly recertified Max 737, which should be eligible to fly again before the end of the year.
However, Boeing was hoping to deliver over 300 of its 450 inventoried MAXs in 2021, but due to a lack of demand, now expects to deliver only half. The figure is in line with Seifman’s previous estimate, although the analyst warns that might be optimistic, too.
“There is likely downward pressure here,” Seifman noted, “As management pointed to flexibility on the rate ramp based on delivery cadence.”
Overall, given the “range of challenges” such as “continued pressure on deliveries and plans to issue equity for retirement plans,” along with the uncertainty on travel demand, Seifman sticks to a Neutral (i.e. Hold) rating. However, the price target gets a haircut and is slashed from $170 to $155. There’s potential for 7% of upside from current levels. (To watch Seifman’s track record, click here)
Let’s see now how BA fares amongst other Wall Street analysts. 7 Buys, 8 Holds and 1 Sell add up to a Moderate Buy consensus rating. The forecast is for upside of ~15% over the following months, given the average price target clocks in at $177.33. (See Boeing stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
