Aviation was one of the most badly hit sectors during 2020, but last year, the sector started witnessing a strongly positive development. However, shares of Boeing (BA) did not show much movement.
Currently, its stock is down 18% year-over-year and about 8% year-to-date. With all the ongoing conflict between Russia and Ukraine and the threat of future wars, industrial businesses like Boeing are likely to get a significant boost. We are bullish on the stock.
The Boeing Company, popularly known as Boeing, is a United-States based multinational organization engaged in the designing, manufacturing, and selling of equipment like airplanes, rotorcraft, rockets, satellites, telecommunications equipment, and missiles.
Besides that, it also has a leasing and product support service facility. The company was considered the third-largest defense contractor in the world as per its 2020 revenue and is also the largest exporter in the United States in terms of dollars.
Boeing used to be a stock market darling, but the past three years have been quite traumatizing for the company. Despite improvements in the conditions of the travel industry, this aerospace giant is still far from getting back to normal levels.
However, recent developments and the uptick in its orders suggest the company might be slowly moving towards a better future. Earlier this month, Ethiopian Airlines resumed flying its Boeing 737 Max after the deadly 2019 crash for the first time. Also, in January this year, Qatar Airways, one of the world’s largest cargo carriers, ordered up to 50 777-8 Freighters, “expanding its commitment to the Boeing 777X family”.
Moreover, leaving aside its commercial segment, its defense business can also capitalize on the ongoing socio-political conditions the world is facing these days. Therefore, if Boeing can utilize such positive developments in a proper manner, good days might not be far for this company.
Robert Stallard, a Wall Street Analyst from Vertical Research, is also quite optimistic regarding Boeing and therefore has maintained a Hold rating on the stock in late January. However, he has lowered the price target on the company from $244 to $234. Stallard has forecasted the company’s 2022 core EPS to be around $3.81, while during 2023, it might reach $7.15. Besides, his free cash flow forecast is $3 billion for this year and $11 billion for the next year.
Missed Revenue Estimates
The recent challenges faced by Boeing have taken a toll on its financials. The company came out with its fourth-quarter financials last month for the period ending December 31, 2021, where it reported a loss of $4.16 billion. This translates to earnings per share of -$7.69 per share. Though the loss incurred was lower by $4.27 billion compared to last year, the company’s overall revenue had also taken a 3% drop.
One positive aspect noticed in its financials was Boeing’s improving liquidity level. The company was able to generate a positive free cash flow of $494 million this time, and its consolidated debt levels had also decreased by 4.3 billion year-over-year.
Boeing attributed its loss to the $3.5 billion pre-tax non-cash charges it had taken on the 787 Dreamliner program, stating that there has been a halt in deliveries because discussions with regulators have taken much longer than expected. BA expects by next year, its level of abnormal cost relating to this might increase even further.
Wall Street’s Take
Turning to Wall Street, BA stock has a Moderate Buy consensus rating based on 12 Buys and five Holds assigned in the past three months. The average Boeing price target of $258.75 implies 40.3% upside potential.
The Russia-Ukraine War Effect
The onset of war-like conditions between Russia and Ukraine has majorly impacted financial markets across the globe. The economic impacts are already huge, and if such a situation lasts longer, the cross-border commercial sales of the company might see some serious changes. The depressed travel demand to Europe can turn out to be adverse for Boeing’s airplane business, as it would lead to a reduction in airplane demand.
Moreover, Russia plays a key role in supplying titanium and titanium parts, which are extensively used in the aerospace sector. On the Boeing 787, around 15% of the weight is titanium or the titanium alloy Ti-6Al-4V, which means over 19 tons of titanium is used in the manufacture of a single aircraft. The war would heighten the chances of disruption in the titanium supply chain.
However, on the other hand, this adverse threat of war can be immensely beneficial for the company’s defense sector which also contributes a substantial portion to its revenues.
A quick end to the war would likely cause Ukraine to be rebuilt, and then industrial giants like Boeing will get a tremendous opportunity to rebuild the country’s manufacturing base along with replacing the destroyed power plants, airplanes, and other industrial infrastructure.
Conclusion
Boeing is still rebuilding and will require a lot more time to again regain its position as a high-quality airline stock. Some lingering issues in respect to the pandemic coupled with uneven responses from countries across the globe have largely affected this stock’s recovery, but looking at the current trend of response the company’s products are receiving and the environment in which the company is surviving, it might thrive again soon.
So, looking at its present price level, the Boeing stock will be worth buying.
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