Is this aerospace icon a buy?
An aerospace icon is on the comeback. Here is the break down of $BA, otherwise known as Boeing.
Current Price: $226.48
52/Wk High: $278.56
52/Wk Low: $141.58
Market Cap: $132.8 Billion
3 Month Performance: -3.34%
Read below for the break down!
Boeing ($BA) is an aerospace and defense icon that was founded in 1916. Today the company operates in over 150 countries and supports major airlines, the US government, and US allies around the world.
In recent years the once-unstoppable company has run into a bout of trouble, from the 737 Max crisis and COVID-19 to the most recent 787 production issues. While the company has experienced major setbacks and financial pain, recent earnings, management changes, and economic growth point to a comeback.
The company is led by President and CEO David Calhoun who took the company over in the depths of turmoil throughout 2020. Calhoun boasts experience from the likes of Blackstone Group, General Electric, The Nielsen Company, and more.
In recent management news, Boeing appointed Brian West as Chief Financial Officer (CFO). West provides the team with management history from the likes of Refinitiv, Oscar Health Insurance, and General Electric.
Breaking down Boeing’s stock price according to TREFIS (@trefis) data, the Commercial Airplanes segment makes up 43.7% of the stock price.
Furthermore, the Defence, Space, and Security Systems segment makes up 31.1%, the Global Services segment 23.7%, and the Boeing Capital Corporation segment makes up 1.5%.
Lastly, 27.3% of the stock price is represented by net debt and cash.
Of late, investors have feared a lack of production recovery yet management continues to set lofty recovery goals. According to the company the Commercial Airplanes segment expects to be producing 31 737 aircraft per month by 2022, a huge improvement over the current 16.
Digging into the numbers, Boeing beat Q2 expectations with an EPS of $0.40, better than the analyst’s EPS consensus estimate of $-0.83. On a year-over-year basis, EPS improved by 108.35%.
Revenues continued to recover in Q2, totaling $16.998 billion overall. On a year-over-year basis total revenue increased by 44% from the lower Q2 2020 level of $11.807 billion.
Sifting through the numbers earnings from operations improved significantly, jumping from a lackluster $-2.964 billion to a much better $1.023 billion in Q2.
Margins continue to recover as well, with operating margin improving from a horrendous Q2 2020 level of -25.1% to a much better 6.0% in Q2 2021.
On the net earnings front, Boeing reported $567 million in net earnings, representing a significant improvement over the Q2 2020 net loss of $-2.395 billion.
Rounding out company-wide metrics, Boeing reported improving operating cash flow, with Q2 2021 operating cash flow landing at $-483 million compared to the same time 2020 level of $-5.280 billion.
The company also reported significantly improved free cash flow (FCF), with Q2 FCF totaling $-705 million compared to the Q2 2020 FCF level of $-5.628 billion.
Leadership did note that cash flow improvements were driven by higher delivery volumes and lower expenditures.
Shifting into segment-by-segment metrics the Commercial Airplanes segment experienced significant improvements. The Commercial Airplane segment delivered 268% in revenue expansion year-over-year, bringing the segment’s total revenue to $6.015 billion.
The segment also delivered a loss from operations of just $-472 million, a large improvement when compared to the Q2 2020 level of $-2.762 billion.
Not only did revenues and losses improve, but margins impressed with leadership reporting a -7.8% operating margin level for the segment compared to the same time 2020 level of -169.1%.
Rounding out the Commercial Airplane segment, deliveries accelerated by 295% year-over-year, bringing the company to 79 total Commerical Airplane deliveries throughout Q2.
Finally, the segment contributes over 4,100 aircraft to the backlog, representing a sizable $285 billion.
Shifting into Defense, Space & Security, the segment delivered $6.876 billion in revenues throughout Q2, representing 4% growth on a year-over-year basis.
The segment’s earnings from operations improved by 60% year-over-year, jumping from a lower $600 million to $958 million.
Rounding out the segments quarterly results, the operating margin improved from a lower 9.1% in Q2 of 2020 to a much better 13.9% in Q2 of 2021.
Do note that throughout the first half, the segment has experienced 11% revenue growth, 233% growth in operating earnings, and a 203% improvement in operating margin.
Finally, the Defense, Space & Security segment contributes $59 billion to the overall backlog.
Shifting into the final core segment, the Global Services segment delivered $4.067 billion in revenue growth, representing 17% expansion on a year-over-year basis.
The segment also delivered a significant improvement in earnings, with earnings from operations jumping from a lower $-672 million to a better $531 million.
On a final earnings note, the Global Services segment delivered a 13.1% operating margin in Q2, representing a strong improvement over the Q2 2020 level of -19.3%.
Leadership was upbeat after reporting Q2 results.
“We continued to make important progress in the second quarter as we focus on driving stability across our operations and transforming our business for the future,” Calhoun said.
Shifting into the balance sheet the numbers could be improved.
Total Debt: $63.575 Billion (Down Q/Q)
Total Liabilities: $168.093 Billion
Total Assets: $150.035 Billion
Cash & Short Term Inv: $21.920 Billion
On a valuation basis, Boeing does trade at a premium.
Forward Price to Earnings: 41.46x
Price to Sales: 2.32x
Price to Cash Flow: 29.60x
Management could be more effective going forward.
Return on Assets: -5.71%
Return on Invested Capital: -13.63%
Given the numbers, the analysts are bullish with a mean price target of $269.82/share, representing a 19.14% upside.
The high price target is $307.00/share, representing a 35.55% gain, while the low price target is $224.00/share, representing a -1.10% downside.
The big money is quite involved with 52.35% of Boeing being owned by institutions. Top holders include Newport Trust Company, The Vanguard Group, and State Street Global Advisors.
On a technical basis, Boeing could be providing opportunity. According to the six-month charts, the MACD is moving with slight upside momentum within a tight range around -4.76.
The six-month charts are also indicating an RSI of 51.59 and CCI of 42.23, both of which are lower.
Exploring investor sentiment the bears believe the continued delays in manufacturing and continuing pandemic will create further financial pain driving downside performance.
Meanwhile, the bulls believe Boeing can continue to recover given the continuing economic recovery, travel comeback, and so-called aerospace upgrade cycle.
In short, Boeing ($BA) is a solid underdog play within the aerospace and defense industry, offering a recovery in financials, a solid management team, and improving orders that only boost confidence in the company going forward.
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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.