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Is It A Buy As 737 Max Orders Climb?| Investor’s Business Daily

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Boeing (BA) has faced a turbulent two years but aircraft orders are rising. So, is Boeing stock a good buy now? Investors should look at the aerospace giant’s fundamentals and the BA stock chart.

On Dec. 21, the Dow Jones aerospace giant announced UPS (UPS) ordered 19 Boeing 767 freighters, capping off a year of stronger orders.

Boeing received 109 aircraft orders in November, all for its 737 Max aircraft. It delivered 34 aircraft last month, including 28 737 Max jets. The company’s 787 Dreamliner deliveries are still on hold despite Boeing Senior Vice President Ihssane Mounir saying in November that the company is “getting close” to restarting deliveries. He said that the timing depends on regulator approvals.

Boeing has delivered 302 aircraft since the start of the year through the end of November and recorded 829 gross orders.

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Analysts are also more bullish on Boeing stock. RBC named Boeing stock a top pick for 2022 on improving free cash flow.

Boeing Stock Fundamental Analysis

But despite the uptick in orders, Boeing has faced some challenges this year. On Oct. 27, the company reported a Q3 loss of 60 cents per share on revenue of $15.3 billion. FactSet analysts expected a Boeing loss of 20 cents per share on revenue of $16.37 billion.

Boeing recorded $183 million in “abnormal costs” during the quarter at its commercial aviation division amid continued production issues with the 787 Dreamliner. It expects the low production rate and rework on the aircraft to cost $1 billion in total.

For Q3, Boeing delivered 85 commercial aircraft, but no Dreamliners due to mounting production problems.

As orders rise Boeing is outlining plans to increase 737 Max output to as many as 42 jets a month in fall 2022, industry sources told Reuters. Boeing has publicly said it plans to boost production steadily from its current lower production rate to hit 31 jets per month in March 2022.

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Boeing’s earnings-per-share growth has averaged 0% over the past three years, according to IBD Stock Checkup. Revenue has contracted by 19% on average over the past three years.


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Boeing Stock Technical Analysis

BA stock has been on a wild ride due to the Boeing 737 Max fallout and the Covid-19 pandemic.

BA stock is currently below its downward sloping 50-day and 200-day lines, trading near 52-week lows, according to MarketSmith analysis. But shares popped in late December on the UPS and analyst news. The emergence of the omicron Covid-19 variant has weighed on the overall market.

Boeing stock is showing weak CAN SLIM fundamental metrics, including a poor 31 Composite Rating out of a best-possible 99, and a 53 EPS rating.

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Defense, Space Segments

While Boeing’s commercial business faces some headwinds, its defense business is starting to see some positive trends thanks to foreign military sales.

The Australian Navy and Air Force ordered 11 more P-8 maritime surveillance aircraft on April 1. Germany became the eighth customer, ordering five P-8s in July. The United Arab Emirates will receive Boeing EA-18G Growler electronic warfare planes as part of a major U.S. arms deal after normalizing ties with Israel last year. Improving ties between Israel and other U.S. allies in the Mideast could unlock more deals.

The U.S. Air Force awarded Boeing a $2.1 billion contract on Jan. 20 for 15 more tankers, with the total under contract now at 94. But the company recorded a $275 million charge for the tanker in Q4 2020 due to “production inefficiencies including impacts of COVID-19 disruption.” Overall charges total more than $5 billion.

(Boeing)

Boeing also produces the F/A-18 Super Hornet for the U.S. Navy and foreign militaries. In July 2020 Boeing received the first order for what could be a $23 billion contract to build F-15EX fighters for the Air Force.

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But the company’s $3.9 billion Air Force One contract has thrust some issues at Boeing into the spotlight yet again.

The company is investigating empty bottles of tequila that were found in one of the aircraft in September.

The color scheme of the jets was a contentious point during Donald Trump’s presidency. He proposed a red, white and blue livery design for the aircraft to replace John Kennedy’s iconic light blue design. But Air Force officials said Sept. 21 that Trump’s design was not finalized.

Meanwhile, the company’s space business suffered a setback Dec. 20, 2019, when its Starliner capsule failed to reach the proper orbit for docking with the International Space Station over a software issue that could have destroyed the space capsule. Boeing expected to redo the test flight on July 30 of this year. But the test flight was delayed indefinitely as the company looks for the cause of a technical issue with a valve in the reaction control system.

In early October, NASA moved astronauts off a Starliner mission and onto a SpaceX Crew Dragon mission to the ISS as delays continue.

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In Q3, Boeing recorded a $185 million charge on the Starliner capsule for NASA’s commercial crew program, adding to a prior $410 million in pretax charges.

Boeing is also facing continued delays with its Space Launch System rocket, a key part of NASA’s ambitious Artemis mission. On Jan. 16, NASA cut short a hot-fire test of the Space Launch System’s core stage, but successfully retested the system on March 18.


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Boeing Stock Eyes Exit From Survival Mode

To help preserve cash, Boeing suspended its dividend on March 20, 2020, and extended its pause on share buybacks until further notice.

On April 20, 2020, CEO David Calhoun said the company doesn’t plan to bring back the Boeing stock dividend in the near term, adding that cash flow should turn positive again in the near- to medium-term future.

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Management has said paying down debt is a priority before it can resume payouts. The aerospace giant is also considering a stock sale to help pay down debt accrued by the 737 Max grounding.

Boeing 777 9X
(Boeing)

The order book is seeing new life again too. Along with Southwest, Ireland’s Ryanair (RYAAY), Alaska Air Group (ALK), United Airlines (UAL) and Dubai Aerospace Enterprise have ordered more 737 Max jets.

While orders are picking up, Boeing is still dealing with some 737 Max issues. On May 29, Boeing agreed to pay $17 million in fines as part of a Federal Aviation Administration settlement over installing unapproved sensors on 737 Max and 737 Next Generation aircraft.

Even with new 737 Max orders rising, Boeing doesn’t expect to increase production to 31 per month until the beginning of 2022, later than a prior estimate of 31 per month in 2021.

As Boeing continues to deal with 737 Max issues, it had some good news out the Dubai Airshow in November for its widebody aircraft.

Boeing debuted its long-awaited 777X jet on Nov. 14. The company is facing pressure from Dubai-based airline Emirates over the 777X delays. Boeing also said it was in talks to sell a cargo version of the aircraft.

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Boeing 737 Max

Problems with the Maneuvering Characteristics Augmentation System (MCAS) automated flight-control software contributed to the Ethiopian Air crash in March 2019 as well as the October 2018 Lion Air crash. Combined, the two crashes killed 346 people.

What was expected to be a temporary blip saw the 737 Max grounded for 20 months. The FAA approved the jet’s return to service on Nov. 18, 2020, and the European Union and Canadian regulators followed in early 2021.

Boeing 737 MAX
(Boeing)

In December, Brazil’s Gol Linhas Aereas Inteligentes (GOL) and American Airlines (AAL) resumed 737 Max commercial flights. On Feb. 11, United resumed 737 Max flights. Meanwhile, Southwest Airlines began passenger service on March 11. India approved the jet’s return to service in late August.

But Chinese regulators, the first to ground the Max back in 2019, have been slow to recertify the 737 Max even as test flights started in early August. But more clarity is coming. On Dec. 2, the Civil Aviation Administration of China issued an airworthiness directive on the 737 Max, giving a runway for the jet’s return to commercial service. However, it doesn’t outline a timeframe for when the jet might return.

The grounding, suspension of deliveries, and production halt have been costly. Combined with charges booked last year, 737 Max-related costs now approach $20 billion.

Just as 737 Max flights began taking off, a wiring issue, which was disclosed on April 7, prompted a pause in deliveries. Boeing announced May 13 that the Federal Aviation Administration approved its fixes for the wiring issue and sources told Reuters that the aerospace giant has resumed deliveries of the jet on May 19.

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It also marked the second time deliveries were halted and resumed, after a second fatal crash in 2019 triggered an earlier pause.


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787 Dreamliner Issues

With the 737 Max back in the skies, issues have been found with the 787 Dreamliner.

Some titanium parts on Dreamliners built over the last three years are weaker than they should be, sources told The Wall Street Journal.

A prior issue was found in the forward pressure bulkhead at the front of the 787, involving the skin of the aircraft. The Dow Jones aviation giant expects to deliver less than half the Dreamliners in its inventory this year. That’s down from an earlier estimate of nearly all its completed planes.

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Boeing cut its production rate to two 787 Dreamliners per month until deliveries resume. Then it will bump up production to five per month “over time.”

The aerospace company had approximately 105 Dreamliners in its inventory at the end of Q3. Boeing said the Dreamliner delivery timing will be dependent on inspections and rework, customer fleet planning and work with the regulators.’

American is planning to cut some international flights this summer due to Dreamliner delivery delays


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Is Boeing Stock A Buy?

Boeing 737 Max jets are flying again, but demand for widebody planes like the 787 and the 777X remains weak.

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The approval of Covid-19 vaccines helped the stock but earnings will likely remain under pressure for a while as the International Air Transport Association, a trade group, doesn’t see air travel rebounding to 2019 levels until 2024.

BA stock remains under its 50-day and 200-day lines.

Bottom line: Boeing stock is not a buy.

Investors looking for more stocks to buy can find companies with stronger, more consistent earnings growth and better stock technicals.

Follow Gillian Rich on Twitter @IBD_GRich for aviation news and more.

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