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Boeing's Prospects in Southeast Asia Shine: Should You Buy the Stock Now?
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The Boeing Company (BA - Free Report) recently released its 2024 Commercial Market Outlook (“CMO”) for Southeast Asia, wherein the company expects the region’s commercial fleet to more than triple over the next two decades. This reflects a remarkable growth opportunity for the American jet giant, with Boeing being a prominent customer of Southeast Asia’s commercial aviation manufacturing industry as well as aviation services.
Notably, air passenger traffic in Southeast Asia is projected to grow 7.2% annually, through 2043, while airlines in this region are estimated to expand their share of the Asia-Pacific fleet from 17% to 25%. This surely boosts Boeing’s prospects in this part of the world, with the company’s long-standing partnership with Southeast Asia dating back to the 1940s.
Such bright growth prospects mentioned above might lure investors, particularly those trading in the commercial aerospace industry, to add this stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at how BA has performed so far in terms of share price return, the stock’s prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
BA Stock Lags Industry, Sector & S&P 500
Shares of America’s largest passenger aircraft maker have lost 40.7% year to date, underperforming the Zacks aerospace-defense industry’s decline of 4.4% and the broader Zacks Aerospace sector’s growth of 2.8%. BA lagged the S&P 500’s rise of 20% in the said time frame.
The company's year-to-date return also lagged two key commercial jet makers, Embraer (ERJ - Free Report) and Textron (TXT - Free Report) , whose shares surged 100.2% and 7.6%, respectively.
BA Stock’s YTD Performance
Image Source: Zacks Investment Research
What Caused BA Stock to Fall?
Boeing has been staggering for quite some time now 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.
Notably, 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, there was a slowdown in the delivery of 737 jets in connection with disruptions related to the Alaska Airlines 737-9 accident and subsequent 737-9 grounding in January 2024.
Consequently, the company’s commercial airplanes segment’s revenues suffered a year-over-year deterioration of 32% in the second quarter of 2024, with lower 737 deliveries being a key driving factor. The company also suffered major cancellations in its aircraft orders, primarily in relation to the quality control issues for its 737 jets.
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.
These industry headwinds seem to have played their part in pulling down not only Boeing’s performance but also that of its arch-rival, Airbus Group (EADSY - Free Report) , whose shares have lost 2.5% in the year-to-date period.
Will the BA Stock Recover Anytime Soon?
Looking ahead, Boeing’s prospects do not seem very bright in the commercial aerospace industry, at least in the near term. As of June 30, 2024, Boeing had approximately 90 737-8 aircraft in inventory that were produced before 2023. Until the company starts to successfully deliver a bulk of these inventoried jets, its BCA segment will continue to incur significant storage costs as well as dismal revenues. These, in turn, are likely to adversely impact its earnings as well as cash flow from operations, at least in the next couple of quarters.
However, over the long run, we may expect the company to produce better results on the virtue of its varied products and services, ranging from combat jets and missiles to aviation aftermarket services in both commercial and military aerospace industries. Notably, the Boeing Defense, Space & Security (BDS) segment won key contract awards worth $4 billion in the second quarter, which resulted in a solid backlog amount of $59 billion, as of June 30, 2024. Such a solid backlog count indicates notable revenue generation prospects for BA’s defense business segment in the coming quarters.
The Zacks Consensus Estimate for BA’s long-term (three-to-five years) earnings growth rate is currently pegged at a solid 21.3%.
A clearer picture can be offered by the company’s upcoming top and bottom line estimates.
BA’s Estimates: A Mixed Bag
Boeing’s 2024 and 2025 earnings estimates mirror an annual improvement, which offers some hope for the stock to rebound from its current peril as we progress toward the end of 2024.
However, its sales estimates reflect a mixed picture. While the third-quarter 2024 sales estimate reflects a year-over-year increase, the same for 2024 indicates a decline. The 2025 estimate, however, mirrors growth.
Image Source: Zacks Investment Research
BA Stock’s 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
Should You Make an Entry Now?
To summarize, despite the solid annual earnings growth potential for Boeing, it is not advisable for investors to buy this stock right now. One should wait for a better entry point, considering BA’s poor ROIC, dismal year-to-date performance, dim near-term outlook for its commercial business as well as persistent industry challenges.
BA currently has a VGM Score of F, which is also not a very favorable indicator of strong performance. The company’s Zacks Rank #4 (Sell) further supports our thesis.
Image: Shutterstock
Boeing's Prospects in Southeast Asia Shine: Should You Buy the Stock Now?
The Boeing Company (BA - Free Report) recently released its 2024 Commercial Market Outlook (“CMO”) for Southeast Asia, wherein the company expects the region’s commercial fleet to more than triple over the next two decades. This reflects a remarkable growth opportunity for the American jet giant, with Boeing being a prominent customer of Southeast Asia’s commercial aviation manufacturing industry as well as aviation services.
Notably, air passenger traffic in Southeast Asia is projected to grow 7.2% annually, through 2043, while airlines in this region are estimated to expand their share of the Asia-Pacific fleet from 17% to 25%. This surely boosts Boeing’s prospects in this part of the world, with the company’s long-standing partnership with Southeast Asia dating back to the 1940s.
Such bright growth prospects mentioned above might lure investors, particularly those trading in the commercial aerospace industry, to add this stock to their portfolio. However, before making any hasty decision, it would be prudent to take a look at how BA has performed so far in terms of share price return, the stock’s prospects as well as risks (if any) to investing in the same. The idea is to help investors make a more insightful decision.
BA Stock Lags Industry, Sector & S&P 500
Shares of America’s largest passenger aircraft maker have lost 40.7% year to date, underperforming the Zacks aerospace-defense industry’s decline of 4.4% and the broader Zacks Aerospace sector’s growth of 2.8%. BA lagged the S&P 500’s rise of 20% in the said time frame.
The company's year-to-date return also lagged two key commercial jet makers, Embraer (ERJ - Free Report) and Textron (TXT - Free Report) , whose shares surged 100.2% and 7.6%, respectively.
BA Stock’s YTD Performance
What Caused BA Stock to Fall?
Boeing has been staggering for quite some time now 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.
Notably, 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, there was a slowdown in the delivery of 737 jets in connection with disruptions related to the Alaska Airlines 737-9 accident and subsequent 737-9 grounding in January 2024.
Consequently, the company’s commercial airplanes segment’s revenues suffered a year-over-year deterioration of 32% in the second quarter of 2024, with lower 737 deliveries being a key driving factor. The company also suffered major cancellations in its aircraft orders, primarily in relation to the quality control issues for its 737 jets.
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.
These industry headwinds seem to have played their part in pulling down not only Boeing’s performance but also that of its arch-rival, Airbus Group (EADSY - Free Report) , whose shares have lost 2.5% in the year-to-date period.
Will the BA Stock Recover Anytime Soon?
Looking ahead, Boeing’s prospects do not seem very bright in the commercial aerospace industry, at least in the near term. As of June 30, 2024, Boeing had approximately 90 737-8 aircraft in inventory that were produced before 2023. Until the company starts to successfully deliver a bulk of these inventoried jets, its BCA segment will continue to incur significant storage costs as well as dismal revenues. These, in turn, are likely to adversely impact its earnings as well as cash flow from operations, at least in the next couple of quarters.
However, over the long run, we may expect the company to produce better results on the virtue of its varied products and services, ranging from combat jets and missiles to aviation aftermarket services in both commercial and military aerospace industries. Notably, the Boeing Defense, Space & Security (BDS) segment won key contract awards worth $4 billion in the second quarter, which resulted in a solid backlog amount of $59 billion, as of June 30, 2024. Such a solid backlog count indicates notable revenue generation prospects for BA’s defense business segment in the coming quarters.
The Zacks Consensus Estimate for BA’s long-term (three-to-five years) earnings growth rate is currently pegged at a solid 21.3%.
A clearer picture can be offered by the company’s upcoming top and bottom line estimates.
BA’s Estimates: A Mixed Bag
Boeing’s 2024 and 2025 earnings estimates mirror an annual improvement, which offers some hope for the stock to rebound from its current peril as we progress toward the end of 2024.
However, its sales estimates reflect a mixed picture. While the third-quarter 2024 sales estimate reflects a year-over-year increase, the same for 2024 indicates a decline. The 2025 estimate, however, mirrors growth.
Image Source: Zacks Investment Research
BA Stock’s 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.
Should You Make an Entry Now?
To summarize, despite the solid annual earnings growth potential for Boeing, it is not advisable for investors to buy this stock right now. One should wait for a better entry point, considering BA’s poor ROIC, dismal year-to-date performance, dim near-term outlook for its commercial business as well as persistent industry challenges.
BA currently has a VGM Score of F, which is also not a very favorable indicator of strong performance. 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.