What happened
Boeing (BA -0.76%) has caused a lot of turbulence for investors in recent years, but lately the signs are all pointing to a company that is regaining cruising altitude.
Investors have taken notice. Shares of Boeing gained 11.8% in January, according to data provided by S&P Global Market Intelligence, due to improving fundamentals at the business and increasing optimism that a full-on recession can be avoided.
So what
Few aerospace stocks have faced greater headwinds than Boeing since 2019. The company's 737 MAX, once projected to be among the top-selling airplane designs of all time, was grounded for 18 months after a pair of fatal crashes. By the time those issues were resolved, the global pandemic had airlines on the defensive, grinding new plane sales to a halt.
But the 737 MAX is flying again throughout most of the world, and demand for air travel has recovered as the worst effects of the pandemic have waned. In early January, Boeing reported 774 commercial orders for 2022, including 561 for the 737 family. By comparison, Boeing delivered 480 airplanes for the year.
The company got another boost mid-month when China Southern Airlines restored the 737 MAX to its flight schedule. China is the last major aviation market to withhold recertification of the 737 MAX, in part because of geopolitical tensions with the United States. It is also one of the most important aviation markets for growth, and Boeing can ill-afford any roadblocks to Chinese sales.
Boeing finished off January with a quarterly earnings report that hinted at a promising 2023. Though the headline numbers were terrible -- the company lost $1.75 per share when analysts were expecting a $0.26-per-share profit and revenue fell short of expectations as well -- Boeing said it sees strong demand across its portfolio.
It also forecast at least $4.5 billion in operating cash flow this year, reiterated its goal for $10 billion in free cash flow by 2026, and said it was ramping production of the 737 MAX due to increasing demand.
Improving macroeconomic sentiment also provided a lift to Boeing shares. Airlines tend not to buy as many planes during recessions, so Boeing investors are eager to see the Federal Reserve achieve a soft landing and not send the economy into a tailspin in the quarters to come.
Now what
Boeing is on the comeback trail, but the shares are still about 40% below where they were at the beginning of the pandemic. It is hard to argue with the discount.
For one, Boeing's total debt ballooned by nearly 400% during the pandemic as the company scrambled to make sure it had the cash on hand to survive an extended downturn. The borrowings were a wise precaution, but the company now needs that robust cash flow generation just to return its balance sheet to more normal levels. Deliveries are a big part of the solution, but airlines that have been buying planes lately say they are getting good deals because Boeing is eager to move metal.
Boeing also needs to prove to investors burned by the 737 MAX and other corporate issues that it really has turned a new leaf. Rebuilding credibility will take time. Recession fears could pop up again as well.
The bottom line is that although Boeing's most likely trajectory from here is up, it could be a choppy and gradual rise. Investors need to be careful not to get ahead of themselves even if the company has finally turned the corner.
