By most accounts it was another rough quarter for Boeing (BA 1.10%). Third-quarter earnings fell short of analysts' estimates and the aircraft maker dialed back full-year delivery expectations for its 737 MAX jets, and -- perhaps worst of all -- it remains in the red.
You might want to buy the stock anyway. There's one overarching tailwind that's going to solve all these problems sooner or later, and probably sooner than later. Boeing shares could even start performing better in anticipation of this improvement.
NYSE: BA
Key Data Points
Boeing is a work in progress, but it is making progress
Boeing reported a net loss of $1.6 billion last quarter -- or $1.1 billion on a non-GAAP (adjusted) basis -- on revenue of $18.1 billion. Both are improvements over year-ago results, with the top line growing a tidy 13% and topping estimates of just over $18 billion. Still, the loss of $3.26 per share was bigger than analysts' expectations for a loss of only $2.96. The company also now believes it will deliver between 375 and 400 of its popular 737 MAX passenger jets, down from earlier estimates of 400 to 450.
Despite clear challenges, Boeing maintains it will produce free cash flow of between $3 billion and $5 billion this years, an impressive figure given that the company had only racked up about $1.5 billion worth of free cash flow through the third quarter.
But, never say never. The analyst community is looking for a big swing back to profitability in the quarter now underway, with many of what Chief Financial Officer Brian West described on the Q3 earnings call as "abnormal costs" finally dissipating. Boeing isn't likely looking to dish out another unpleasant surprise to shareholders.
Data source: StockAnalysis.com. Chart by author.
This budding turnaround isn't the top reason to buy Boeing stock after its recent pullback, however. There's a much bigger, better reason to take a swing here.
Boeing's got a massive amount of business already lined up
Analysts and investors alike have devoted a great deal of time to parsing Boeing's third-quarter numbers and its subsequent projections. Few people are talking about the most important factor working in the company's favor now and for the foreseeable future, however. That's aircraft orders. The company's backlog now stands at $469.2 billion, up 7% from the second quarter's tally, and 23% higher than its unfilled orders as of this time last year. In fact, that's the biggest Boeing's backlog has been since 2019, when it was on the way down after two catastrophic crashes of its lauded 737 MAX.
Data source: Boeing Co. Chart by author.
Don't get too excited just yet, though. Most of these orders aren't meant to be delivered for several years. For perspective, the company's currently sitting on orders for 5,783 aircraft, but the company had only delivered 371 planes through the first quarter. And it has only received orders for 848 aircraft in 2023, signaling a fairly average year.
On the flip side, the vast majority of these orders are contractual rather than unobligated. While contractual orders can still be canceled, they typically are not.
And such cancellations are even less likely in the foreseeable future for a mostly overlooked reason. That is, airlines desperately need new aircraft.
It's not the sort of data that's readily circulated, but the International Air Transport Association reports the average age of airlines' passenger jets is on the order of 10 years old, with a surprising number of them in excess of 20 years old. Even if they're not yet at the end of their useable life, these less efficient aircraft are becoming more expensive to maintain and operate.
The COVID-19 pandemic, of course, only postponed the purchase of new jets, accelerating demand for new ones now.
Now pair this need with the sheer projected growth of the air travel industry. In its forecast published early this year the Airports International Council suggested total air travel traffic would reach 19.3 billion passengers in 2041, well up from last year's figure of 6.5 billion, and en route to 23.9 billion passengers by 2050.
There aren't enough planes to meet this demand, new or old. That's why Boeing believes the world's airlines will need to purchase more than 42,000 new passenger jets between now and 2042, more than doubling current fleet sizes during this time frame even as older planes are retired.
It's a self-serving figure to be sure, but not an unbelievable one given the probable demand for air travel in the future.
Fasten your seat belt, there's turbulence ahead
The backdrop is certainly bullish. There's no denying, however, Boeing stock is capable of dishing out plenty of drama. Production delays are becoming a bit too commonplace. The company's still burning through money at a pretty brisk pace, too. The stock seems very sensitive to headlines as well, for better or worse. It's not an investment for the faint of heart.
If you can jump in and sit tight for a few years without flinching at each and every sign of trouble, this stock is a compelling buy at recent lows. Just don't mistake it as a core, foundational piece of your portfolio. Leave that work to less volatile names. Boeing's for the higher-risk, higher-reward sliver of your investments.
