Categories Analysis, Industrials

Boeing (BA) set to gain altitude on 737 MAX clearance, vaccine rollout

Recently, Boeing resumed deliveries of the controversial 737 MAX jets after securing clearance from the Federal Aviation Administration

After a long spell of slowdown, The Boeing Company (NYSE: BA) is seeing signs of a gradual recovery after it resumed delivery of 737 MAX jets, the grounded aircraft model that got clearance from the Federal Aviation Administration to return to the skies. The plane manufacturer has been hit by the double whammy of the 737-MAX crisis and COVID-related travel disruption.

Mixed View

Boeing has been on a losing streak since the latter part of the last fiscal year. For the company, the virus outbreak could not have come at a worse time as the business was already suffering due to the widespread grounding of flights amid safety concerns. Meanwhile, market watchers are divided in their views on the stock that witnessed multiple rating revisions in recent months, both upward and negative. One bright spot is the favorable target price, which points to double-digit growth this year.

While the persistent macroeconomic uncertainty adds to the risk, the recent dip in valuation can be considered as a buying opportunity. Those who prefer to play it safe should follow the wait-and-watch strategy until at least the next earnings release, which is expected on January 27 before the opening bell.

Boeing reports Q3 2020 earnings results

Losing Streak

In the September-quarter, once again the company incurred a net loss, but the latest number was slightly better compared to the previous quarters. On a per-share basis, net loss was $1.39 in the third quarter, compared to earnings of $1.45 per share in the corresponding period of last year. However, the bottom line came in above analysts’ prediction. Overall, the performance was impacted by the COVID-induced travel restrictions that resulted in a 29% drop in revenues to about $14 billion.

New Hopes

Recovery hopes brightened after regulators in the U.S. recertified 737 MAX for resuming operations, about a year after it was grounded following two major crashes that claimed hundreds of lives. Adding to the positive sentiment, the roll-out of COVID vaccines across the globe is expected to bring the aviation sector back on track, putting an end to the turbulence that started several months ago. While the worst seems to be over for the company, the recovery is going to take a long time due to the economic headwinds.

From Boeing’s third-quarter 2020 earnings conference call:

As we look to the medium and long-term, we see our original prognosis more or less still holds. Consistent with IATA and other industry groups, we still expect it will take around three years for travel to return to 2019 levels and a few years beyond that to return to long-term growth trends. Demand for narrow-body aircraft is expected to recover faster than widebody demand as domestic and regional markets will outpace longer haul international routes. Availability and wide distribution of a vaccine may help accelerate the demand improvement.

Take Off

The company restarted pending deliveries of 737 MAX units last month – mainly to American Airlines (AAL), Southwest Airlines (LUV), and United Airlines (UAL) — but customers might not be very eager to place fresh orders for the troubled aircraft, given the controversy surrounding its safety.

Read management/analysts’ views of Boeing’s Q3 2020 earnings

Boeing’s stock is still languishing in the multi-year lows seen in early 2020 when the markets were battered by the coronavirus outbreak. Trading almost at half the pre-crisis value, it has underperformed the market since then. The shares, which lost about 38% in the past twelve months, traded slightly above the $200-mark on Tuesday, maintaining the modest uptrend that followed Monday’s fall.

Looking for more insights?

Read the full conference call transcript here. It’s free!

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