Is Boeing Stock a Buy Following Q3 Earnings?
As restrictions tightened in Europe amidst rising fresh coronavirus instances, U.S. stock market went into a tailspin this particular week. Obviously, the aviation sector was not spared, and despite better than anticipated Q3 earnings, neither was Boeing (BA). The stock concluded the week down 14 %, further contributing to 2020’s bad performance.
Expectations were low proceeding directly into the quarter’s print documents, as well as even with posting a quarter consecutive quarterly loss, Boeing’s third quarter results came in in advance of Wall Street estimates.
Revenue dropped by 29.4 % year-over-year, but during $14.1 billion still overcome the Street’s forecast by $140 zillion. The loss on the bottom line wasn’t as terrible as expected, either, with Non GAAP EPS of -1dolar1 1.39 beating opinion by $0.55.
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Boeing reported poor (FCF) free cash flow of $5.08 billion, nonetheless, still, the figure was an improvement on the preceding quarter’s poor $5.6 billion. However, with a great deal of uncertainty surrounding the aviation industry, Boeing’s optimism of transforming cash flow positive next year appears a tad upbeat.
Being an end result, RBC analyst Michael Eisen cut his 2021 estimate from FCF generation of $3.9 billion to a cash burn up of $5.3 billion. The change is mostly driven by further build of inventory,” that the analyst sees “surpassing $90 BN in early’ 21,” as well as “a lag time within the timing of liquidating those business aircraft. Eisen now anticipates bad FCF until 1Q22, compared to the previous 3Q21.
Boeing announced it plans on cutting an additional 7,000 jobs. The business entered 2020 with 160,000 employees and has already reduced staff by 19,000. The A&D giant said it expects to lower the workforce down to 130,000 by the end of 2021.
It all points to an uphill struggle, nevertheless, Eisen thinks BA can turn a working profit in’ 21.
We feel profitability remains a wildcard as the business battles to eliminate price tag out of the device to offset an absence of demand restoration and will mainly be determined by commercial demand improving, Eisen said. Longer-term, the structural techniques to consolidate operations by up to 30 %, buy of efficiencies, and permanently management expense should supply upside as demand recovers.
Additional catalysts including the re-certification of the 737-MAX, the potential incremental orders of commercial aircraft in addition to defense get smaller honours, continue Eisen’s rating an Outperform (i.e. Buy). The price target of his, during $181, implies a twenty five % upside out of existing levels. (To watch Eisen’s background, press here)
BA gets mixed reviews from Eisen’s colleagues yet they lean to the bulls’ side. According to 8 Buys, nine Holds and one Sell, the stock has a reasonable Buy consensus rating. Upside of ~24 % might remain in the cards, given the $179 average price target. (See Boeing stock evaluation on TipRanks)