Boeing (BA) is scheduled to report results of its fiscal third quarter before the market opens on Wednesday, October 28, with a conference call scheduled for 10:30 am ET. What to watch for:
1. GUIDANCE: When Boeing reported its Q2 results on July 29, it did not provide specific financial guidance but noted that financial results continued to be significantly impacted by COVID-19 and the 737 MAX grounding. The company also noted that the 737 program resumed early stages of production in May and expects to continue to produce at "low rates for the remainder of 2020." On the Q2 earnings conference call, Boeing said it expects commercial aviation to revert to growth trend over long-term, but added that it could take three years for travel to return to 2019 levels.
2. CONTINUING COVID-19 IMPACT: Boeing said on its Q2 earnings call that it made steady progress toward the safe return to service of the 737, including completion of FAA certification flight tests. However, the company noted that COVID-19 was complicating the 737 MAX review by international regulators.
To align to the sharp reduction in commercial market demand in light of COVID-19, Boeing said it took several actions, including further adjusting commercial airplane production rates and reducing employment levels. Boeing added that it would further assess size of workforce due to a prolonged COVID-19 impact.
3. LESS DEMAND SEEN OVER NEXT DECADE: On October 6, Boeing released its annual forecast for the commercial and defense aerospace market, reflecting the impact of the COVID-19 pandemic and its view of near-, medium- and long-term market dynamics. The 2020 Boeing market outlook projected that the commercial aviation and services markets "will continue to face significant challenges due to the pandemic, while global defense and government services markets remain more stable." The company forecast a total market value of $8.5T over the next decade including demand for aerospace products and services. The forecast is down from $8.7T a year ago due to the impact of the COVID-19 pandemic. "Airlines globally have begun to recover from a greater than 90% decline in passenger traffic and revenue early this year, but a full recovery will take years, according to the outlook," Boeing said in a statement. The company also projects a $2.6T market opportunity for defense and space during the next decade. The 2020 outlook includes projected demand for 18,350 commercial airplanes in the next decade - 11% lower than the comparable 2019 forecast - valued at about $2.9T. "In the longer term, with key industry drivers expected to remain stable, the commercial fleet is forecasted to return to its growth trend, generating demand for more than 43,000 new airplanes in the 20-year forecast time period," Boeing said. The commercial forecast includes that over the next 20 years, passenger traffic growth is projected to increase by an average of 4% per year.
4. DIVERGENT ANALYST OPINIONS: On September 8, Morgan Stanley analyst Kristine Liwag initiated coverage of Boeing with an Underweight rating and $181 price target as part of starting coverage of the Aerospace industry with a Cautious view. Given the current environment, which includes both an aircraft production crisis in the form of the 737 MAX and air travel shock in the form of COVID-19, Liwag said she did not expect Aerospace stocks to trade at a premium to the market until there are sustained signs of new aircraft production increasing. Her free cash flow multiple for Boeing represents an "early commercial aerospace up-cycle multiple" and considers a return to service for the 737 MAX as well as rebounding air traffic, Liwag noted. Due to higher aircraft cancellation risks, she prefers to be relatively Underweight the OEMs and sees better opportunity in aftermarket players, she added. On October 7, Liwag said she remained "comfortable" with her Underweight rating and $181 price target on Boeing.
On September 20, Goldman Sachs analyst Noah Poponak added Boeing to the firm's Conviction List while keeping a Buy rating on the shares with a $225 price target. The current environment presents a new aircraft supply and demand "challenge," but it is manageable, Poponak told investors in a research note. Airlines fleet plan in multi-year periods of time, and many are now planning to substantially increase retirements to continue taking new deliveries, said the analyst. With Boeing's pace of backlog revision "now slowing and better understood," and its new backlog coverage "still robust," Poponak said he sees an opportunity in Boeing shares. He called Boeing a "rare cyclical investment opportunity ahead of eventual end-market improvements."
Boeing
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