It's been a turbulent flight for Boeing (BA 3.20%) investors over the last several years. The aerospace giant has struggled to emerge from pandemic-era disruptions while dealing with ongoing investigations into the two separate 737 Max aircraft crashes.
The latest setback has been the fallout from the midflight aircraft cabin plug blowout incident earlier this year. Production delays and a sharply lower earnings outlook have pressured the stock, down 32% this year.
These themes will be a focus for Boeing's upcoming second-quarter earnings report (for the period ended June 30) on July 31. With expectations low, the market will be looking for signs the company is moving forward.
Should investors buy shares of Boeing now or leave this one sitting at the gate? Here's what you need to know.
NYSE: BA
Key Data Points
Outstanding issues add to volatility
There are many moving parts when looking at Boeing stock as an investment idea. The attraction of the stock starts with the company's global leadership in commercial aviation, also recognized as a key defense contractor with a long history of innovation.
That reputation has taken a hit through a series of disappointments and weaker financial trends more recently. Still, there is a view that Boeing can emerge stronger.
The good news is that the company is taking steps to reaffirm its commitment to aviation safety. The latest development has been the acquisition of Spirit AeroSystems, a key supplier of its aerostructures.
The goal is to enhance its supply chain with more direct manufacturing quality control to avoid the critical failures that have marked the 737 Max program. Boeing's Q2 earnings will be an opportunity for management to offer an update on the $4.7 billion transaction and its necessary regulatory approval timeline.
Separately, there are indications the U.S. Department of Justice is progressing toward a final plea agreement covering the 737 Max crashes in 2018 and 2019. Boeing will reportedly pay a new $243.6 million fine under a criminal charge, alleging the company made false statements to the Federal Aviation Administration (FAA) in the original investigation.
There is some concern about whether a corporate conviction could jeopardize Boeing's position as a government contractor. One argument is that Boeing's strategic importance to national security may allow it a waiver to continue operating normally through a probation period that includes tighter regulatory scrutiny.
Image source: Getty Images.
Boeing Q2 Earnings Preview
The headlines aren't pretty, but the market typically rewards less uncertainty. The ability of Boeing to reach a resolution on its outstanding issues and turn the page on this difficult chapter could allow shares to soar. In terms of financials, the turnaround will take a bit longer.
According to Wall Street estimates, Boeing is forecast to report negative earnings-per-share (EPS) of -$1.55 for the second quarter, representing a widening loss from the -$1.13 core EPS in the first quarter. Revenue is expected to decline by double digits from the period last year.
The weakness reflects curtailed production following a brief work stoppage in Q1 to address quality concerns since the January cabin failure on an Alaska Air Group flight in January. Preliminary figures show Boeing delivered just 70 Max 737 in Q2, compared to 103 in Q1 2023.
Favorably, management expects to ramp up Max 737 production toward the monthly limit of 38 aircraft imposed by the FAA into the second half of the year. This is in the context of a strong backlog that reached over 5,600 commercial aircraft or $529 billion in orders at the end of Q1, implying ongoing customer confidence.
An important metric this quarter will be Boeing's free cash flow. The number will likely be negative as a continuation of trends from Q1, but indications the company is generating financial efficiencies within the circumstances could be well received by the market. The tone management sets during the conference call should also be closely watched.
A cautious outlook makes sense
I'm a long-term Boeing bull, but I acknowledge the high risks over the near term. My expectation is for shares to remain volatile. For current shareholders, a hold rating on the stock likely makes sense. Investors thinking about a position may be better off taking a wait-and-see approach.
