Boeing (NYSE:BA) has had a tough year. Amid widespread fallout from two fatal crashes involving its 737 planes earlier this year, the global airplane manufacturer has seen demand for its planes plummet as customers re-assess the “trustworthiness” of the company’s planes. Year-to-date, Boeing’s total commercial airplane deliveries have dropped nearly 50% from a year ago.
As deliveries have crashed, so has Boeing stock. The stock peaked in early March 2019 at an all-time high of just under $450. Since then, shares have dropped more than 20%.
Amid this huge selloff, Boeing reports earnings Wednesday, before the bell. Bulls are hoping that this earnings report will do enough to put an end to the bleed in Boeing stock.
But, will it?
I’m not so sure. At one point in time, I thought Boeing had put the 737 crisis behind it, and consequently thought that shares could start flying higher again. Recent developments underscore that this isn’t the case. The reality is that so long as the 737 crisis sticks around, demand for new Boeing planes will remain depressed, the numbers will remain weak and BA stock will remain grounded.
As such, I’m not terribly bullish on BA stock heading into the print. Until the 737 crisis permanently moves into the rear-view mirror, Boeing stock will remain weak — and that’s exactly where the stock finds itself today.
Don’t Expect Much From Boeing Earnings
Investors shouldn’t expect much from Boeing earnings because: 1) the numbers won’t be that good, and 2) there’s not much management can say on the call to save the day.
On the first point, Boeing’s numbers this Wednesday morning simply won’t be that good. Boeing is a big business with a lot of moving parts, but at its core, it’s a commercial airplane manufacturer. Earlier this month, we got an update that the commercial airplane business is coming off the rails in Boeing’s Q3 delivery update.
The company only delivered 63 commercial planes in Q3, as 737 plane deliveries essentially came screeching to a halt (only five deliveries in the quarter). In the year-ago quarter, Boeing delivered three times as many as planes, including 138 Boeing 737 planes. Sure, excluding the 737, Boeing’s plane business is doing just fine (both Q3 and year-to-date delivery volumes are up year-over-year, excluding the 737).
But, you can’t ignore the 737 because it’s such a big piece of the pie. YTD, Boeing’s total plane delivery volume is down about 50%.
When the most important part of your business is down 50%, it’s really tough to pull a rabbit out of your hat and report good numbers. Boeing won’t do that. Instead, Boeing’s Q3 numbers won’t do much to inspire confidence in a BA stock rebound.
In the absence of good numbers, management has to be the source of investor inspiration. But, management has been striking a very confident tone for a long time now. All that has happened during this stretch is that the 737 crisis has worsened. As such, the market won’t bet big on a rebound based on management confidence alone.
Ultimately, there’s not much to be terribly excited about with respect to Boeing stock ahead of earnings.
Boeing Stock Isn’t Ready to Pull Up
Zooming out, Boeing stock simply isn’t ready to pull up, and it won’t be ready to pull up until the 737 crisis moves into the rear-view mirror.
The logic is simple. Boeing has a problem — a reputation problem. At risk of oversimplifying things, Boeing basically rushed the production of a plane, and this rushed production led to a bunch of errors and missteps, which ultimately resulted in two fatal crashes. Now, customers are pausing and/or canceling orders because they don’t “trust” Boeing’s new planes. Some are switching to competitors, like Airbus. The longer these 737 issues stick around, the more customers will pause and/or cancel orders, and the more customers will switch to Airbus.
It’s that simple. From an optics standpoint, it’s very similar to Facebook (NASDAQ:FB) and the Cambridge Analytica scandal in 2018, in that both companies put profits before customer safety and security. Facebook stock didn’t rebound until the Cambridge Analytica scandal moved into the rear-view mirror in 2019. Importantly, they weren’t dealing with customer churn (most advertisers stuck with Facebook). Boeing is dealing with customer churn, so, it reasons that Boeing stock definitely won’t rebound until the 737 crisis moves into the rear-view mirror.
When will that happen? Not soon.
The microscopic look into the 737 has been and remains unrelenting, and the public keeps finding out more and more news — none of which reflects well on BA stock. So long as the 737 news-flow remains negative, BA stock — which still isn’t that cheap at 15-times next year’s earnings estimates — will remain weak.
Bottom Line on BA Stock
At some point, Boeing stock will rebound in a big way from its 2019, 737-related selloff. But, not here, and not now. Before that rebound happens, the optics surrounding the 737 situation need to improve.
For a few weeks, they were improving. Now, those optics are deteriorating, and it looks like bad 737 optics are here to stay for the foreseeable future. As such, Boeing stock will most likely remain weak for the foreseeable future, too.
As of this writing, Luke Lango was long FB.
