Is Boeing Stock a Buy Following Q3 Earnings?
As limitations tightened in Europe amidst rising new coronavirus instances, U.S. stock market went right into a tailspin this specific week. Naturally, the aviation sector wasn’t spared, and in spite of better than expected Q3 earnings, neither was Boeing (BA). The stock finished the week down fourteen %, further contributing to 2020’s poor performance.
Expectations were low proceeding into the quarter’s print, and despite publishing a fourth consecutive quarterly loss, Boeing’s third quarter results came in ahead of Wall Street estimates.
Revenue dropped by 29.4 % year-over-year, yet during $14.1 billion nonetheless overcome the Street’s forecast by $140 zillion. The loss on the main point here wasn’t as terrible as expected, either, with Non-GAAP EPS of -1dolar1 1.39 beating popular opinion by $0.55.
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Boeing found negative (FCF) free money flow of $5.08 billion, yet still, the figure was an enhancement on the earlier quarter’s poor $5.6 billion. Nonetheless, with so much uncertainty surrounding the aviation business, Boeing’s optimism of converting money flow positive next year appears a tad optimistic.
To be an outcome, RBC analyst Michael Eisen lower his 2021 estimate from FCF generation of $3.9 billion to a cash burn of $5.3 billion. The change is mainly driven by further build of inventory,” that the analyst sees “surpassing $90 BN to come down with early’ 21,” and “a delay in the timing of liquidating those business aircraft. Eisen now anticipates bad FCF until 1Q22, compared to the prior 3Q21.
Boeing announced it plans on cutting a more 7,000 tasks. The company entered 2020 with 160,000 staff and has already decreased staff by 19,000. The A&D giant said it expects to lower the workforce down to 130,000 by the conclusion of 2021.
All of it points to an uphill fight, although Eisen thinks BA can transform a running profit in’ twenty one.
We believe profitability remains a wildcard as the business battles to get rid of price out of the system to offset an absence of demand restoration and will basically be influenced by commercial need improving, Eisen said. Longer term, the structural techniques to consolidate operations by up to thirty %, investment in efficiencies, and permanently control expense must supply upside as demand recovers.
Additional catalysts including the re-certification of the 737 MAX, the possible incremental orders of business aircraft in addition to safeguard shrink awards, don’t stop Eisen’s rating an Outperform (i.e. Buy). His price target, at $181, implies a twenty five % upside from existing levels. (In order to watch Eisen’s record, press here)
BA gets reviews which are mixed from Eisen’s colleagues yet they lean to the bulls’ side area. According to eight Buys, nine Holds and one Sell, the stock has a reasonable Buy consensus rating. Upside of ~24 % could be in the cards, given the $179 usual price target. (See Boeing stock analysis on TipRanks)