This year has been a difficult one so far for investors in Boeing (NYSE:BA). Year-to-date, BA stock is down about %63. Now that the earnings season is behind us, investors are wondering if it may be an opportune time to buy.
Due to the COVID-19 pandemic, the story of tourism, air travel and the aviation industry has become a painful one. For example, as of April, air travel in the U.S. is down 95% from a year ago. And we do not yet know when air travel, especially international travel, may start fully again.
Therefore, if you are not yet an investor in BA shares, you may want to wait several more weeks to have a better appreciation of when especially global air travel may restart. Long-term investors with a 2-3 year horizon may consider investing in Boeing stock if it declines further, especially toward $110 or below.
BA Stock and Q1 Earnings
Boeing is our biggest manufacturing exporter, offering commercial planes, defense systems, software and services. After Lockheed Martin (NYSE:LMT), it is also the second-largest defense contractor in the world based on revenue.
On April 29, the aviation giant announced its first-quarter results that showed revenue of $16.9 billion. GAAP loss per share was $1.11 or core (non-GAAP) loss per share came at $1.70. These results primarily reflected the negative impacts of the COVID-19 pandemic as well as the 737 MAX grounding that followed the two fatal accidents of 2018 and 2019.
Bowing reported revenue in three main segments:
- Commercial Airplanes (about 37% of revenue);
- Defense, Space & Security (about 36% of revenue);
- Global Services (about 27% of revenue).
CEO David Calhoun said, “The COVID-19 pandemic is affecting every aspect of our business, including airline customer demand, production continuity and supply chain stability.”
Understandable liquidity concerns have been at the forefront too. The group burned through $4.7 billion in cash during Q1. As of the end of 2019, it had around 160,000 employees. Management highlighted plans to cut payroll by about 10% through both voluntary measures and involuntary layoffs.
Finally, InvestorPlace readers may remember that the group has already axed dividends and stopped share buybacks. Therefore, passive income seekers are unlikely to return to Boeing as a reliable dividend investment any time soon. I expect it will be at least several quarters before the Board would even re-consider dividend payouts or share buybacks.
In case of further supply or delivery questions, Q2 results can also pretty dismal.
Can Boeing Stock Recover Soon?
Boeing stock started 2020 around $330. At the time, the Street was wondering whether the shares could re-test the all-time high of almost $450 it had seen in March 2019.
However, on March 18, 2020, BA stock saw a 52-week low of $89. Now it is hovering at around $120.
Boeing’s business for the rest of the year has been deeply impacted by the developments on the health and economic front. For example in an April update, Boeing said that customers have canceled 150 of the 737 Max planes. In comparison, during the last quarter of 2019, it had delivered 79 airplanes.
Yet Boeing is no ordinary company. It has an undeniable importance to our economy and the aviation sector.
In mid-March, President Trump said, “I think we have to protect Boeing.”
On March 27, he signed the economic stimulus legislation, called the CARES Act. Although Boeing is not specifically mentioned in the aid package, the bill sets aside $17 billion for “businesses critical to maintaining the national security.”
However, at this point, we do not have the full details of a potential bailout for Boeing.
On the other hand, it is likely that an upcoming rescue deal has already been factored into the recent increase in the Boeing stock price. In the past few days, broader markets have been losing steam. They are in part reacting negatively to comments from Federal Reserve Chair Jay Powell. And there may soon be further profit-taking in broader markets. Then I’d expect BA shares to come under pressure, possibly until the next earnings report that would be expected in July.
Investor Takeaway on Boeing Stock
The steep decline in air travel levels may continue to adversely affect Boeing’s revenue, profit, and cash flow. And it will likely drag on the earnings as well as the BA stock outlook, too. There is no doubt that the group is facing an extremely important crisis.
Although I expect the Dow Jones Industrial Average member to eventually weather the adverse effects of both the pandemic and the MAX fallout, it will likely take several quarters for Boeing stock price to stabilize. In the coming weeks, I expect range-trading, between $100 and $125.
If you already own Boeing shares, you may want to wait and ride out the choppy waters. Alternatively, you may consider initiating an ATM covered call position, for example, with a one- or two-month horizon. A June 19- or July 17-expiry covered call would decrease the volatility in your portfolio, offer some downside protection and also enable you to participate in a potential up move.
Finally, those investors who would like some Boeing stock exposure but are nervous about the prospects for the year may consider buying into an exchange-traded fund (ETF) that has the stock as a holding. Examples such ETFs would include the Industrial Select Sector SPDR Fund (NYSEARCA:XLI), the SPDR Dow Jones ETF (NYSEARCA:DIA) or the Vanguard Industrials ETF (NYSEARCA:VIS).
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, she did not hold a position in any of the aforementioned securities.