Boeing Co. BA-N is facing big problems that have been weighing heavily on its share price this year. But the aerospace giant has been down before, and investors who swooped in on a bargain were rewarded.
This may be another buying opportunity.
As this week’s earnings report illustrated, Boeing is in a tough position right now. A mid-air door failure in January on a Boeing 737 MAX 9, flown by Alaska Airlines, has resulted in additional regulatory scrutiny and pushed the company to focus on improving quality controls.
The impact: Deliveries of commercial airplanes fell by 36 per cent in the first quarter from the same period a year ago, and revenue fell 8 per cent.
Boeing reported a loss of US$355-million in the three months ended March 31, and – more concerning – burned through US$3.9-billion in cash during the quarter.
“Longer term, we remain confident in our ability to achieve US$10-billion of free cash flow. However, given our continued focus on safety, quality and stability, we continue to expect that this goal will take us longer than we originally planned,” Brian West, Boeing’s chief financial officer, said on a call with analysts this week.
Little wonder, then, that the share price is down 37 per cent this year.
But Boeing has bounced back from other downturns, some related to labour disputes, economic headwinds and safety concerns.
Being one of just two companies, along with Airbus SE, that can meet global demand for commercial airliners certainly helps its position. So, too, does its diversification into defence and security, where sales rose 6 per cent last quarter.
A massive backlog of orders, now worth US$529-billion, buttresses the case that Boeing is here to stay. That’s why the beaten-up stock deserves another look.
The last big rebound occurred in 2020, when the COVID-19 pandemic shredded Boeing’s profitability and cash flows after lockdowns and severe travel restrictions.
Yes, most other stocks also bounced back from a marketwide meltdown that year. But Boeing’s recovery stood out because it came with bad news for income-loving investors: The company suspended its quarterly dividend in March, 2020.
It was a drastic move for a large, blue-chip company that had been delivering a cash payout to investors for more than 40 years.
Rather than turning investors away, though, the suspension marked the start of Boeing’s recovery: The share price rebounded more than 180 per cent over the next 12 months. Yet, four years later, there is still no dividend.
The broader takeaway here is that the fear of a dividend cut – or other severe moves – can be worse for a share price than the cut itself. That’s something to keep in mind as yields on some telecoms and pipelines climb to record-high levels.
More specific to Boeing is that investors appear to recognize that this is a company operating in a sector with a very high barrier to entry and strict regulations. This status virtually assures the stock can recover from periodic dips that follow threats to the company’s market share.
How? Four years after shelving the dividend, the company is again making bold moves.
Dave Calhoun, the chief executive officer, will step down from his position at the end of the year. Boeing is also addressing quality issues within the company and its supply chain by adding controls, inspections and job training.
Its factories are now open to 737 operators, and Boeing has agreed to new manufacturing oversight from the U.S. Federal Aviation Administration – important steps toward gaining regulatory approval for increasing production of its planes.
Delivery of 737s slowed to 67 in the first quarter, down from 113 planes in the same quarter last year. Management is upbeat that Boeing can increase production, with FAA approval, later this year. It also expects that sluggish deliveries of its 787 Dreamliner will rise to five planes a month later this year, and 10 a month by 2026.
“This slowdown, in my view, is an opportunity for us to shore-up whatever supply chain issues were out there, sort of one supplier at a time,” Mr. Calhoun said on the call with analysts.
Some investors might scoff at management – the same guys who were responsible for lacklustre quality control – to deliver on these specific goals. But even skeptics should recognize that when Boeing is down, a recovery is likely in the works.
David Berman