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Boeing (BA) Stock Falls 29.5% YTD: What's Next for Its Investors?
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Despite the commercial air travel statistic riding high in recent times, share price performance has not been decent for The Boeing Company (BA - Free Report) , of late. Notably, shares of America’s largest passenger aircraft maker lost 29.5% year to date, underperforming the Zacks aerospace-defense industry, the broader Zacks Aerospace sector, as well as the S&P 500. The company also lagged the year-to-date return of two key commercial jet makers Embraer (ERJ - Free Report) and Textron (TXT - Free Report) , whose shares surged 55.9% and 13.5%, respectively.
Boeing YTD Performance
Image Source: Zacks Investment Research
Interestingly, Boeing has been staggering for quite some time at the bourses due to persistent quality control issues with one of its major commercial programs, along with some critical challenges offered by the commercial aerospace industry amid soaring demand for its commercial jets, aftermarket services and a well-established defense portfolio.
Now, let’s delve a bit deeper to understand the reason behind the dismal performance of Boeing’s shares and what growth opportunities (or hardship, if any) it has to offer to its investors so they can make a more insightful decision.
What Led to Boeing’s Freefall?
The largest growth inhibitor for Boeing is its 737 Max program. Ever since the twin crashes during late 2018-early 2019, the crisis for Boeing’s 737 Max program seems to be never-ending. In the latest development on this issue, the company recorded an earnings charge of $443 million, net of insurance recoveries, in the first quarter of 2024. This was in connection with estimated considerations to customers for disruptions related to the Alaska Airlines 737-9 accident and subsequent 737-9 grounding in January 2024.
In addition to such internal issues, industry challenges like shortage of skilled labor and steadily rising fuel prices pose a threat to Boeing, especially to its commercial airplane division. Moreover, due to persistent supply-chain challenges, not only aircraft makers but also aerospace parts suppliers are struggling to keep up with the soaring demand, thereby limiting the potential for timely delivery of finished aircraft.
All these industry headwinds seem to have played their part in pulling down Boeing’s performance. Notably, these industry challenges have also hurt the performance of its arch-rival, Airbus Group (EADSY - Free Report) , with its shares having lost 9.4% in the year-to-date period.
Is There a Silver Lining?
Despite facing all the aforementioned challenges, Boeing offers solid long-term growth opportunities, backed by its solid pipeline of commercial jet programs, strong portfolio of combat-proven defense products and impressive commercial jet service business attributes.
Boeing expects the first delivery of its 777-9 jet to occur in 2025 and that of the 777-8 freighter in 2027. It is currently following the lead of the Federal Aviation Administration (“FAA”) as it is working through the certification process of the 737-7 jet model. Once these jets enter the market, Boeing should earn notable profits.
Boeing forecasts a $3.8-trillion market opportunity for commercial aviation services over the next 20 years. This should bode well for its service business unit (over the long run), with a total backlog of $19.69 billion as of Mar 31, 2024. In the defense space, Boeing is currently focused on future franchise programs such as the MQ-25, the T-7A Red Hawk, the KC-46A Tanker, the VC-25B and the MH-139A Grey Wolf. The company projects a $2.8 trillion market opportunity for defense and space during the next decade, which should bode well for Boeing, given the aforementioned products in the pipeline. BA has a long-term (three-to-five years) growth rate of 25.5%.
Upbeat Earnings Estimates
A quick sneak peek at BA’s 2024 and 2025 earnings estimates mirrors an annual improvement, which offers some hope for the stock to rebound from its current peril as we progress toward the end of 2024.
The Zacks Consensus Estimate for 2024 earnings is pegged at a loss of $2.27 per share, which indicates a solid improvement from the prior-year reported loss of $5.81. The 2025 estimate also reflects similar growth.
Image Source: Zacks Investment Research
Trading at a Discount
In terms of valuation, BA’s forward 12-month price-to-sales (P/S) is 1.31X, a discount to the industry’s average of 1.51X. This suggests that investors will be paying a lower price than the company's expected sales growth. The stock is also trading lower than its 5-year median of 1.44.
Image Source: Zacks Investment Research
Dismal ROIC
The stock’s trailing 12-month return on invested capital (ROIC) not only lags the industry’s return but also reflects a negative figure. This indicates that the company's investments are not generating sufficient returns to cover its costs.
Image Source: Zacks Investment Research
What Should Investors Do?
To summarize, despite the solid growth potential Boeing offers over the long run and favorable valuation, it is not advisable to add this stock to one’s portfolio right now, considering its poor ROIC as well as persistent quality control issues associated with its 737 program.
Considering the International Air Transport Association’s June 2024 estimates that the supply chain will slow the pace of aircraft delivery in 2024, industry challenges for Boeing are also not likely to disappear anytime soon. Therefore, investors should keep a close vigil on this jet giant’s future performance for a more appropriate entry point. The company’s Zacks Rank #4 (Sell) further supports our thesis.
Image: Bigstock
Boeing (BA) Stock Falls 29.5% YTD: What's Next for Its Investors?
Despite the commercial air travel statistic riding high in recent times, share price performance has not been decent for The Boeing Company (BA - Free Report) , of late. Notably, shares of America’s largest passenger aircraft maker lost 29.5% year to date, underperforming the Zacks aerospace-defense industry, the broader Zacks Aerospace sector, as well as the S&P 500. The company also lagged the year-to-date return of two key commercial jet makers Embraer (ERJ - Free Report) and Textron (TXT - Free Report) , whose shares surged 55.9% and 13.5%, respectively.
Boeing YTD Performance
Interestingly, Boeing has been staggering for quite some time at the bourses due to persistent quality control issues with one of its major commercial programs, along with some critical challenges offered by the commercial aerospace industry amid soaring demand for its commercial jets, aftermarket services and a well-established defense portfolio.
Now, let’s delve a bit deeper to understand the reason behind the dismal performance of Boeing’s shares and what growth opportunities (or hardship, if any) it has to offer to its investors so they can make a more insightful decision.
What Led to Boeing’s Freefall?
The largest growth inhibitor for Boeing is its 737 Max program. Ever since the twin crashes during late 2018-early 2019, the crisis for Boeing’s 737 Max program seems to be never-ending. In the latest development on this issue, the company recorded an earnings charge of $443 million, net of insurance recoveries, in the first quarter of 2024. This was in connection with estimated considerations to customers for disruptions related to the Alaska Airlines 737-9 accident and subsequent 737-9 grounding in January 2024.
In addition to such internal issues, industry challenges like shortage of skilled labor and steadily rising fuel prices pose a threat to Boeing, especially to its commercial airplane division. Moreover, due to persistent supply-chain challenges, not only aircraft makers but also aerospace parts suppliers are struggling to keep up with the soaring demand, thereby limiting the potential for timely delivery of finished aircraft.
All these industry headwinds seem to have played their part in pulling down Boeing’s performance. Notably, these industry challenges have also hurt the performance of its arch-rival, Airbus Group (EADSY - Free Report) , with its shares having lost 9.4% in the year-to-date period.
Is There a Silver Lining?
Despite facing all the aforementioned challenges, Boeing offers solid long-term growth opportunities, backed by its solid pipeline of commercial jet programs, strong portfolio of combat-proven defense products and impressive commercial jet service business attributes.
Boeing expects the first delivery of its 777-9 jet to occur in 2025 and that of the 777-8 freighter in 2027. It is currently following the lead of the Federal Aviation Administration (“FAA”) as it is working through the certification process of the 737-7 jet model. Once these jets enter the market, Boeing should earn notable profits.
Boeing forecasts a $3.8-trillion market opportunity for commercial aviation services over the next 20 years. This should bode well for its service business unit (over the long run), with a total backlog of $19.69 billion as of Mar 31, 2024.
In the defense space, Boeing is currently focused on future franchise programs such as the MQ-25, the T-7A Red Hawk, the KC-46A Tanker, the VC-25B and the MH-139A Grey Wolf. The company projects a $2.8 trillion market opportunity for defense and space during the next decade, which should bode well for Boeing, given the aforementioned products in the pipeline. BA has a long-term (three-to-five years) growth rate of 25.5%.
Upbeat Earnings Estimates
A quick sneak peek at BA’s 2024 and 2025 earnings estimates mirrors an annual improvement, which offers some hope for the stock to rebound from its current peril as we progress toward the end of 2024.
The Zacks Consensus Estimate for 2024 earnings is pegged at a loss of $2.27 per share, which indicates a solid improvement from the prior-year reported loss of $5.81. The 2025 estimate also reflects similar growth.
Trading at a Discount
In terms of valuation, BA’s forward 12-month price-to-sales (P/S) is 1.31X, a discount to the industry’s average of 1.51X. This suggests that investors will be paying a lower price than the company's expected sales growth. The stock is also trading lower than its 5-year median of 1.44.
Dismal ROIC
The stock’s trailing 12-month return on invested capital (ROIC) not only lags the industry’s return but also reflects a negative figure. This indicates that the company's investments are not generating sufficient returns to cover its costs.
What Should Investors Do?
To summarize, despite the solid growth potential Boeing offers over the long run and favorable valuation, it is not advisable to add this stock to one’s portfolio right now, considering its poor ROIC as well as persistent quality control issues associated with its 737 program.
Considering the International Air Transport Association’s June 2024 estimates that the supply chain will slow the pace of aircraft delivery in 2024, industry challenges for Boeing are also not likely to disappear anytime soon. Therefore, investors should keep a close vigil on this jet giant’s future performance for a more appropriate entry point. The company’s Zacks Rank #4 (Sell) further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.