Boeing (NYSE:BA) shares have been all over the map in 2020, losing half their value in March alone as part of a broader pandemic-related market sell-off. Since early May the bulls have largely been in control, with Boeing shares adding more than 60% during a six week period.
Investors don't typically buy into companies with $100 billion-plus market caps expecting that sort of volatility, but Boeing, like the airlines it serves, has seen business dramatically impacted by the coronavirus pandemic.
Airlines that just months ago were focused on expansion instead had to switch to survival mode, cutting flights and grounding planes. But beginning in May, signs emerged that travel had bounced off a bottom and airlines have started to rally. Boeing shares have gone along for the ride, making back some of what was lost in the early days of the crisis.
The stock has been choppy in recent sessions, plunging and soaring based on shifting perceptions about the health of the airline business. But despite the volatility, those who bought in at the lows in March have been well-rewarded. Here's a look at where things stand for Boeing today, and whether it is too late to buy into the rally.
The business has stabilized...
Boeing is a massive aerospace powerhouse enjoying a global duopoly with Airbus for commercial airplane sales and housing a large defense and space business to complement its commercial arm.
But as recently as April, there were concerns among investors about whether Boeing would have the cash to survive the coronavirus pandemic. Boeing burned through $4.7 billion in the first quarter, eliminated its dividend, and had nearly $10 billion in debt maturities through the remainder of the year and a $13 billion term loan that matures in early 2022.
Boeing alleviated concerns about its viability in late April when it raised $25 billion in fresh debt. The offering adds more than $1 billion in annual interest expense for years to come, but was still likely a better deal than the onerous terms the government was suggesting for a bailout.
The company now has $40 billion in cash and another $10 billion in untapped credit lines to use to ride out the storm and try to prop up its suppliers. Boeing should have more than enough cash to survive a second wave to the pandemic that brings down airline customers, which has attracted new buyers to its shares.
...but the recovery will take years
The stock has rebounded but the business still isn't performing very well. Boeing in May logged just nine orders to go along with 18 cancellations. The company's backlog at month's end stood at 4,744 planes, its lowest total since 2013.
The company's troubled 737 Max makes up nearly 80% of the total backlog and took the brunt of the cancellations. The plane hasn't flown since March 2019, grounded after a pair of fatal accidents, and much of Boeing's cash burn can start to be resolved once the plane is recertified for flight and the manufacturer can begin to move its inventory of jets it has built but can't yet deliver.
Boeing hopes to have the plane in service again during the third quarter, though demand is likely to be tepid as airlines adjust their schedules based on demand. Prior to 2019, Boeing had envisioned ramping 737 Max production to as many as 57 per month, but it has now targeted a monthly production rate of 31 planes in 2021. Even if the pandemic fades and airlines resume growth, the added debt it took on to survive during the crisis will limit its flexibility to buy new jets for years to come.
Boeing is also scaling down production of some of its larger jets, including the 787 Dreamliner and 777, that are used primarily for international travel and likely won't be needed in large numbers by airlines for years.
A model smaller than the 737 that airlines could cost-efficiently use to serve secondary markets could be a hot-seller in this environment. Airbus has the A220 to sell in that category, but Boeing, due to its decision to walk away from a $4 billion deal with Embraer near the height of the coronavirus pandemic, has little to offer.
Add it all up and investors should expect a sales slump that lasts well beyond the pandemic, and as a worst case could extend into the second half of the decade.
It's not too late. It's still too early.
Boeing has done enough to ensure its survival, but can do little to speed a recovery. Its shares were likely oversold earlier this year as panic swept through the markets and airline bankruptcies were all but assumed, but there are not a lot of catalysts on the horizon.
Boeing's defense business has scored some impressive wins in the last two years, but those programs are not going to reach full revenue generation in time to offset weakness in the commercial sector. Meanwhile, the company is still working through embarrassing revelations about its culture that came out during the 737 Max investigation, and is operating with a relatively new CEO.
It remains a powerful company with an impressive set of assets. I think it is safe to say that an investor who buys in to Boeing today and is willing to wait out the commercial aerospace slump will eventually make a solid return on that investment. But given the challenges Boeing faces, and the expectations for a multiyear aviation recovery, I expect a lot of industries to recover faster and believe there is a good chance you will be able to buy Boeing in a few months' time within range of its trading price today.
Even within the commercial aerospace sector, there are companies that are likely to recover faster than Boeing due to their different product mixes and exposure to different customers. I don't see Boeing shares outperforming those stocks for the next 3 to 5 years.
If I owned it right now, I'd probably hold on and wait out a recovery. But with so many better options out there today, I see no reason to rush in and buy Boeing shares right now.