Financial Troubles Won’t Let Up for Boeing — But That Means Opportunity

Boeing (NYSE:BA) is still struggling financially, even though it is again delivering the 737 Max that caused so much trouble last year. Boeing also recently reported another non-GAAP operating profit for its most recent quarter. However, BA stock is still drifting and its outlook is not that great — at least for the next several quarters.

Boeing (BA) passenger airplane with open exit door, passenger windows, cargo door, close up view of Boeing logo
Source: vaalaa / Shutterstock.com

In fact, the stock has yet to climb back up to its Mar. 12 peak of $269.19. As of the close of Nov. 2, it was at $212.77 per share, down slightly year-to-date (YTD). That is because the shares closed at $214.06 on Dec. 31, giving this name a YTD performance of -0.60%.

Here’s what you should know about BA stock moving forward — and why you should consider accumulating the shares.

BA Stock: Where Things Stand

On Oct. 27, Boeing reported that, although its third-quarter revenue was up 8% year-over-year (YOY), its GAAP operating profit was $329 million. That is up from a loss of $401 million last year and the second quarter in a row of reporting an operating profit. However, that was the extent of the good news.

The bad news is that, on a non-GAAP basis, Boeing’s “core operating earnings” were only $59 million. This amounts to a core operating margin of just 0.40%.

Moreover, every other figure below this line was negative (Page 13). For example, net income was a loss of $132 million. Likewise, operating cash flow was negative $262 million.

Granted, these figures are much better than a year ago. For example, last year’s operating cash flow was negative $4.8 billion.

Nevertheless, free cash flow (FCF) was negative $507 million (Page 2). This cash burn performance is actually worse than it seems. That is because the figures were lifted up by a one-time $1.3 billion income tax refund, which is not likely to recur. In other words, the adjusted FCF is actually negative $1.8 billion.

No doubt, that is depressing. It implies that this company could be burning through $7.2 billion annually. Boeing had $20 billion in cash and marketable securities, so it could possibly burn through a good chunk of that cash over the next year if sales and operating cash flow don’t improve.

The Problem with Boeing

So, what’s the biggest issue hindering Boeing and BA stock?

For one, many airlines are still reticent about taking delivery of the 737 Max jet airliner as well as the 787. This is despite the fact that the Federal Aviation Administration (FAA) has approved the airworthiness of the planes.

As Reuters recently reported, the 737 Max and 787 are integral to Boeing’s ability to rebound from both the pandemic and the company’s safety scandal. Since the FAA’s approval to return the 737 Max to service in November 2020, Boeing has delivered more than 195 of the planes. In addition, airlines have returned “more than 200 previously grounded airplanes to service.”

However, the 787 has not yet been returned to delivery. The company is producing just two airplanes per month so far, due to structural defects. Boeing has twice halted 787 deliveries, with the latest stoppage ongoing since May. This resulted in an inventory of more than 100 jets worth $9 billion, according to Reuters.

More Issues in Space

These interruptions are not the only thing plaguing Boeing, however. Rather, the company’s space program has experienced more delays with its Starliner transport vehicle as well. After a failed attempt in December 2019 to get the capsule to the International Space Station (ISS), the vehicle has not been able to get back into space successfully.

Mainly, the capsule has been sidelined by 13 stuck propellant valves, which Boeing has only recently been able to get unstuck. NASA and Boeing are targeting the first half of 2022 to launch the rescheduled test flight. This is after the company had to postpone an August 2021 flight as well.

In fact, the only potential bright spot for Boeing’s space division right now is its recent investment in a spinoff of Virgin Galactic (NYSE:SPCE) called Virgin Orbit. The company is planning to go public via a special purpose acquisition company (SPAC). That adds one positive for BA stock.

What to Do with BA Stock

At this point, Boeing needs some sort of success, either financially, in commercial aerospace or in its space division. Until then, BA stock will likely keep floundering.

However, if the company can get its act together, value investors might want to begin picking up the stock now. This is exactly what contrarians do: they look at a company’s problems and try to decide if the issues are fatal. If not, the stock price will tend to reflect mostly bad news but in essence be cheap in the long run.

Following this reasoning — and deeming that Boeing’s airplane and space divisions will eventually right themselves — the financial performance should follow. Therefore, this might be a good time for value investors and contrarians to begin accumulating shares.

On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.


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