Boeing (NYSE:BA) stock is tumbling after the airliner reported worse-than-expected earnings this morning. Going into the print, BA stock had been winding up in a tight range, as investors prepped for the potentially big-moving event.
Boeing shares have been quite volatile over the past few months. A few years ago, the company was touted as a cash-flow machine, with a multi-year backlog stacked with orders. Essentially, Airbus and Boeing owned a duopoly on the global jet market.
That all changed with two events: the 737 MAX disasters and the novel coronavirus.
The former sparked a huge headache for Boeing. The company has logged billions in losses, lost orders and even forced a management change at the helm. Recent reports suggested that the 737 MAX would remain grounded for the rest of the year.
There has been one setback after another with this jet, but the coronavirus dealt an even harder blow to BA stock.
With airline traffic plunging as a result of Covid-19, airlines are bleeding cash right now. While that cash outflow is improving, it still has American Airlines (NASDAQ:AAL), United Airlines (NASDAQ:UAL) and others on the ropes. They are not in a position to be buying billions of dollars worth of new planes.
Coming into the event, investors were aware of all of this negative news. They need earnings to change the narrative.
Boeing Earnings Disappoint
The quarter was not good.
Boeing reported a non-GAAP loss of $4.79 per share, missing estimates by $2.26 per share. A GAAP loss of $4.20 per share was better, but still badly missed estimates by $2.17 per share. Revenue of $11.8 billion sank 25% year-over-year and missed expectations by more than $1 billion. Operating margins also badly missed consensus estimates.
Some bright spots? The company’s total backlog is still north of $409 billion, although that’s down from $474 billion year-over-year. Further, the decline in Q2 2020 revenue was better than the 35% decline Boeing realized in Q2 2019. The company’s Q2 loss was also an improvement vs. 2019, when it lost $5.82 per share.
Still, these are not exactly great positive notes. Boeing still burned through more than $5 billion in the quarter, while debt surged to $61.4 billion at quarter-end from $39.8 billion at the beginning of the quarter. Boeing’s commercial plane backlog fell from $390 billion in Q2 2019 to $326 billion in the most recent quarter. From management: “To align to the sharp reduction in commercial market demand in light of COVID-19, the company is taking several actions including further adjusting commercial airplane production rates and reducing employment levels.”
In other words, the company is cutting production.
The earnings report isn’t necessarily the important thing to watch here. Instead, it’s how BA stock reacts to the earnings report. If the stock actually rallies — and by rally, I mean more than just a pop at the open — that’s bullish price action.
To see a hampered stock rally on bad news could suggest the negativity is all priced in. The question over the next few days and weeks will be, is that the case with Boeing?
How to Go Forward With BA Stock Now
Like General Electric (NYSE:GE), we’ve seen Boeing fall hard, becoming a shell of its former self. The balance sheet has become more levered, cash flow has turned to cash outflow and demand for its products continues to sag.
The dividend has been axed, while its market capitalization is down to less than $100 billion after briefly eclipsing $240 billion in 2019.
The price action has been disastrous over the last month or so, but now below the 20-day and 50-day moving averages is concerning. If $170 support gives way, look for a possible test down into the $150 to $158 area. There BA stock finds the 23.6% retracement and the 100-day moving average. Below could put $120 in play.
On the upside, We need to see a move north of $180. That would put BA stock over the 50-day moving average and downtrend resistance (blue line). Above that puts the 38.2% retracement in play at $188, followed by $200-plus.
This type of upside move would be quite bullish in my eyes, even if the quarter was discouraging.