Boeing Co (BA) profits and revenues are expected to decline year-over-year when it posts earnings Wednesday, but some recent order strength should keep BA stock in recovery mode after stalling out earlier this year.
Boeing stock had a strong 2015, gaining more than 11%. But European competitor Airbus beat BA for the second year in a row when it comes to backlog. The European maker of jets and defense systems ended 2015 with a backlog of 6,774 aircraft vs. 5,795 for Boeing. Airbus also sold more planes last year, with orders of 1,080 to 878 for Boeing.
Cut to this year and the market is still wary of Boeing’s competitive position. BA stock is off 8% for the year-to-date amid a decelerating rate of aircraft production.
Fair enough. Airbus is getting a lift on the strong dollar, while Boeing is feeling pressure from it. Airbus has also seen strong demand for its A321. And then, of course, the clock is ticking for Boeing to earn back developments costs for the 787 Dreamliner.
But Boeing’s fortunes may have hit an inflection point in the first quarter, with some orders and deliveries figures that Airbus can’t match. BA ended the three-month period with a net of 130 orders, led by its popular 737 narrow-body jet.
Airbus didn’t fare nearly so well. After years of leaving Boeing in its wake, the aircraft manufacturer reported just 10 net orders in the first quarter. Indeed, business hasn’t been this slow in five years. It’s clear that Boeing is taking market share from the erstwhile leader.
BA Is an Earnings Beater
The Dreamliner 787 program will be in focus amid analyst concerns that it won’t earn back its development costs by the end of 2022 as forecast. That could lead to a charge. On the plus side, Wall Street would probably back that out of its earnings forecasts.
On the bottom line, Boeing’s earnings are forecast to fall to $1.83 a share from $1.97 a year ago, according to a poll by Thomson Reuters. The Street expects revenue to decline 3.2% to $21.44 billion from $22.15 billion in last year’s first quarter.
If history is any guide, analysts’ average estimates are too modest. Boeing has topped the Street’s revenue outlook for three consecutive quarters, and has beaten its profit target every quarter for at least two years.
Slower production, discounts and weak global growth will likely weight on BA stock all year, but if it can widen its lead over Airbus, maybe the market will reward shares with some multiple expansion.
With a forward price-earnings ratio of just 14, BA stock trades well below its own five-year average, as well as the broader market.
Investors will probably need to be patient with BA this year. Sentiment is clearly holding shares back. But with a healthy dividend yield of 3.3% for new money, it shouldn’t be too hard to wait.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
