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  • Jamie Adams

3 Things To Know If You’re Considering Investing In Boeing

To say that Boeing has had some issues in the past year would be putting it lightly, so where exactly do the problems lie, who is the competition, and is there a recovery plan?

Photo by Ethan McArthur on Unsplash

Following two deadly crashes in the past year, Boeing (NYSE: BA) has been under intense scrutiny. This period of turbulence has seen it passed out as the world’s largest aeronautical company by its main rival Airbus (EPA: AIR). 


The American aircraft giant has suffered a series of delays in relation to its 737 MAX range, as well as some shaky guidance outlooks. With the shadow of the two crashes still lingering, and some poor quarterly earnings, we look at how — or if — the company can recover investor confidence. 



Delays and earnings misses

When a faulty product costs the lives of 346 people, it is never going to be easy getting that product back on the market, and even if you do, who would want to use it?


The Boeing 737 MAX jetliner in question was originally expected to return to service in October, but expectations have pushed this to the latter end of the fourth quarter of 2019. Aside from the obvious cash flow issues involved with this, as were outlined in the company’s October earnings, operations in 2020 may be significantly delayed if a return-to-service is not announced soon. 


CEO Dennis Muilenburg reiterated in an Oct. 23 conference call that a temporary shutdown is among other contingencies being considered if the 737 MAX's return to service is delayed as undelivered planes pile up at its Seattle factory. On top of this, the Securities and Exchange Commission is reportedly investigating the company for discrepancies in its financial disclosures relating to the 737’s grounding. It seems like everything related to the 737 MAX spells trouble for the company. 



During the company’s earnings report, Boeing reported a more than 50% slide in third-quarter profit, worse than analysts expected. CEO Dennis Muilenburg also reiterated that it would not slow down MAX production, which will cause even more headaches should the plane not get the all-clear in the coming months. 


To date, the 737 MAX debacle has cost the company roughly $10 billion and looks set to rise further.


The competition

Back in the summer, Airbus passed out Boeing as the world’s largest plane manufacturer, as one of the world’s greatest business rivalries experienced another twist. 


To highlight this, for the fiscal year-to-date through September, Boeing’s reported 302 delivered commercial aircraft was dwarfed by Airbus’s 571, extending its lead over Boeing to 269 planes from 224 in August. This competitive loss is shown in Boeing’s reported commercial loss of $40 million, compared to a $2 billion profit a year earlier. 


Airbus has yet to benefit massively from Boeing’s current situation as the company continues to miss out on production targets in recent months — a long time failing of Airbus. This failure to ‘twist the knife’ could offer a glimmer of hope for the beleaguered Boeing. 


Recovery

One thing that is clear about Boeing is that it has a much better operational performance than Airbus. Apart from the problems this year, Boeing earnings per share growth has averaged 29% over the past three years. In terms of free cash flow generation, Boeing has been averaging five times as much as Airbus and tends to meet its production targets more consistently. 


There is also cause for optimism in the form of the company’s strong sales in both defense contracts and in space travel, which includes a recent $9 billion deal with the U.S. Air Force to build the next fleet of training jets. This contract alone almost entirely covers the cost of the 737 MAX disaster.


One thing that is clear about Boeing is that it has a much better operational performance than Airbus. Apart from the problems this year, Boeing earnings per share growth have averaged 29% over the past three years. In terms of free cash flow generation, Boeing has been averaging five times as much as Airbus and tends to meet its production targets more consistently. 

MyWallSt operates a full disclosure policy. MyWallSt currently holds no positions in companies mentioned above. Read our full disclosure policy here.