Categories Analysis, Industrials

Boeing (BA) sees slower recovery as supply chain, labor issues persist

While maintaining full-year guidance for 737 deliveries between 400 and 450, the company said it will likely be at the low-end of the range

The Boeing Company (BA) has made good progress in recovering from the double whammy of the 737-MAX grounding and the pandemic, but it has a long way to go before getting back on track. Taking a cue from recent demand recovery, the aircraft maker is raising production and investing heavily in infrastructure and technologies.

Though Boeing’s stock has regained a part of the lost momentum after falling from the 2019 peak, it struggled to stay on the recovery path and experienced further weakness recently. But it changed course and made reasonably good gains this week. BA has been a favorite among income investors, thanks to regular dividend hikes and an above-average yield of 2.4%.

Solid Demand

Boeing is a market leader in aircraft building, with no major competitor other than arch-rival Airbus – together the companies hold more than 90% of the global market share. That makes the stock a good buying option for patient investors who are looking for long-term returns. There is a big backlog, and the company is channeling its resources to fulfill orders. Importantly, the 737 MAX jet, which was grounded globally after two deadly crashes, has returned to service and is fully operational now after intense scrutiny.

Currently, solving supply chain issues and labor problems is a key priority for Boeing, which is crucial for meeting its $10-billion free cash flow target by 2026. Unless the company makes progress in these areas, it is likely to miss the 737 MAX production targets. Earlier this year, the management lowered its 737 MAX delivery targets. Another area that needs improvement is legacy defense programs because some of them have not been profitable lately.

Boeing’s CEO David Calhoun said at a recent meeting with analysts” We continue to make steady progress on our recovery. We do have challenges. The supply chain notably is the most significant, but it’s steadily getting better. Overall, we feel good about our operational and financial outlook including the free cash flow and delivery ranges that we set for 2023, as well as for that 2025 and 2026 timeframe.”

EPS Beats in Q2

What made Boeing’s second-quarter report significant was the earnings beat, which came after seven consecutive misses, though the company continued its losing streak. Core loss, adjusted for special items, widened to $0.82 per share from $0.37 per share in the year-ago quarter. Including special items, the net loss was $149 million or $0.25 per share, which marked a deterioration from the prior-year period when the company earned $160 million or $0.32 per share. June-quarter revenues rose 18% year-over-year to $19.75 billion.

Boeing’s stock started the week on a high note and continued to gain on Tuesday afternoon. Trading around $190, the stock dropped 11% so far this year.

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