Boeing Stock (NYSE:BA)
The Boeing Company (NYSE:BA) released its FQ4’22 and FY22 earnings earlier today. Boeing stock fell more than 4% after reporting earnings but has since recovered.
Deliveries and backlog show promise, supporting the bottoming process in Boeing’s price action in June 2022. Furthermore, Boeing exceeded consensus estimates in its operating cash flow (OCF) and free cash flow (FCF) metrics.
While some investors may be concerned about the company’s adjusted EPS miss, the company also stated that it had to deal with “abnormal costs and period expenses, including R&D” in its commercial segment.
Notably, Boeing emphasized that it will continue ramping up 737 and 787 productions through 2025/26 to propel the company toward the outlook presented at its Investor Day in November 2022.
Commercial Deliveries Improved in Q4
Boeing delivered 152 commercial planes in Q4, up nearly 54% year on year and 36% quarter on quarter. It’s the company’s best quarterly delivery schedule since Q2, indicating improved momentum despite worsening macroeconomic headwinds.
As a result, it contributed to Boeing’s Q4 commercial revenue of $9.22B, up 94% year on year, accounting for nearly 46% of total Q4 revenue. However, the segment continues to lose money, with a segment operating margin of -6.8%.
Despite this, Boeing reported a significant improvement in its backlog, with a 7% increase. Furthermore, its Commercial backlog increased by more than 11% year on year, offsetting the weaker Defense performance.
The profitable Defense segment (Q4: 1.8%) and Global Services (Q4: 13.9%) helped to offset the Commercial segment’s operating losses. Furthermore, Boeing has made encouraging progress in increasing production, improving its ability to deliver aircraft, and improving its cash flow position.
In a recent commentary, CEO Dave Calhoun articulated the tailwinds from China’s reopening, indicating the company’s confidence. Calhoun “expects the nation’s airlines to spend the next six months restoring service to their 100 or so Max jets, and after that, deliveries of new aircraft would be considered.”
Boeing investors have reason to be optimistic, as China Southern Airlines resumed commercial service with the 737 Max in January. Despite increased competition from Airbus (OTCPK:EADSF) and its locally produced C919 aircraft, Beijing will most likely use Boeing’s deliveries to improve the country’s flight capacity.
With China’s policymakers determined to return the country’s economy to growth, President Xi Jinping will go to any length. As a result, it bodes well for continued Chinese carrier deliveries, which will help Boeing’s free cash flow (FCF) position.
However, given Boeing’s significant and sharp recovery from its June 2022 lows, we believe market participants expected Boeing’s operating performance to improve significantly.
Boeing has risen more than 90% from its lows in June 2022 to its recent January highs this week. It also increased its NTM EBITDA multiple to 24.5x, well above the 13.2x median of its peers (according to S&P Cap IQ data).
As a result, savvy investors who took advantage of the June market panic have a significant margin of safety against any post-earnings pullback. As a result, we believe these investors will only be forced to sell if Boeing misses the Street’s adjusted EPS estimates.
However, this does not imply that investors who missed out on the earlier capitulation should join the recent buying frenzy.
Even though we don’t expect the June lows to be revisited, Boeing appears well-positioned for a deeper pullback. However, patience is required for investors who need a large margin of safety.
Regardless, The Boeing Company has demonstrated its ability to execute, which should be bolstered by tailwinds from China’s commitment to driving a rapid and sustained economic recovery in 2023. Boeing stock has gained nearly 8% so far this year.
Featured Image: Google Images @ aerotime.aero