Should You Buy, Hold, or Sell Boeing Stock Ahead of Q3 Earnings Release?

The Boeing Company BA is scheduled to release third-quarter 2024 results on Oct. 23, before market open. 

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

The Zacks Consensus Estimate for revenues is pegged at $17.98 billion, implying a 0.6% decline from the year-ago quarter's reported figure. The consensus mark for third-quarter earnings is pegged at a loss of $4.85 per share, suggesting a deterioration from a loss of $3.26 in the prior-year quarter. The bottom-line estimate declined significantly in the past 60 days.

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Boeing’s earnings missed the Zacks Consensus Estimate in two of the trailing four quarters and beat the same in the other two, the average negative surprise being 1.97%.

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Earnings Whispers

Our proven model does not conclusively predict an earnings beat for Boeing this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they are reported with our Earnings ESP Filter.

BA has a Zacks Rank #5 (Strong Sell) and an Earnings ESP of -60.48%. 

You can see the complete list of today’s Zacks #1 Rank stocks here.

Key Factors to Consider

Solid Expectations From Global Services Business

We remain optimistic about Boeing Global Services’ (“BGS”) top-line performance in the third quarter, as steadily increasing global commercial air travel is likely to have bolstered fleet utilization, thereby boosting commercial jet services sales volume.

Higher commercial services revenues are also likely to have boosted BGS unit’s earnings from operations in the soon-to-be-reported quarter. 

The Zacks Consensus Estimate for the unit’s revenues is pegged at $5,129.8 million, indicating an improvement of 6.6% from the year-ago quarter’s reported number. The consensus mark for earnings is pinned at $919.2 million, indicating solid growth of 117.2% year over year.

Solid Commercial & Defense Deliveries to Aid Q3 Results

Boeing’s third-quarter deliveries reflect a 10.5% increase in commercial shipments from the year-ago quarter’s reported figure. Also, defense shipments surged 21.4% year over year.

Successful deliveries of finished products play a crucial role in boosting revenue growth for manufacturing companies like Boeing.

So, the top-line results from both its commercial and defense business segments are expected to reflect a solid year-over-year performance. 

The consensus estimate for Boeing’s commercial airplanes business segment’s top line is pegged at $8,021.4 million, implying a 1.8% rise from the year-ago quarter’s reported figure. The Zacks Consensus Estimate for the defense unit’s revenues is pegged at $6,092.6 million, indicating an improvement of 11.2% year over year.

Overall Picture

Considering the fact that Boeing’s military and commercial revenues accounted for almost 76% of its total revenues as of 2023-end, the notable improvement in delivery figures for both the commercial and defense shipments is likely to have boosted the company’s overall third-quarter top-line performance, outweighing the positive revenue contribution from the BGS unit.

On the bottom-line front, operating profit from increased deliveries of commercial jets, particularly 737 models, as well as solid sales volume growth for its defense products can be expected to have boosted BA’s quarterly earnings. However, abnormal costs in relation to lower production of 787 jets as well as continued inspections and rework costs on inventoried 787 aircraft, along with the adverse impacts of supply-chain challenges, are likely to have hurt BA’s quarterly earnings. Pre-tax charges associated with 777-X, 767, T-7A, KC-46A, Commercial Crew and MQ-25 programs might have also adversely impacted the third-quarter bottom line.

Price Performance & Valuation

Boeing’s shares have exhibited a downward trend, losing a notable percentage over the year-to-date period. Specifically, the stock plunged 40.6% year to date, underperforming the Zacks aerospace-defense industry’s decline of 7.5%.

YTD Performance

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As evident from the image, other notable stocks from the same industry outperformed BA’s performance. Shares of  Embraer ERJ, Lockheed LMT and Textron TXT have rallied 87.1%, 35.2% and 8.9%, respectively, year to date.   

From a valuation perspective, Boeing is trading at a discount compared to its industry. Currently, BA is trading at 1.10X forward 12-month sales, which is lower than the industry’s forward earnings multiple of 1.59X. The stock is also trading lower than its five-year median of 1.40.

Price-to-Sales (forward 12 Months)

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Investment Thesis

Steadily improving commercial air travel statistics, along with notable efforts undertaken by Boeing in recent times to resolve the persistent quality control issues with its 737 jet product line, seem to have resulted in improved commercial delivery figures. These factors might have played the role of major growth catalysts for this jet giant in the third quarter. 

Increased deliveries must have also boosted Boeing’s free cash flow count. 

Fortunately, the company has not witnessed any order cancellation for its commercial jets in recent times. This might also be duly reflected in BA’s potential revenue growth in the upcoming quarters. 

However, persistent supply-chain challenges, delays in the progress of BA’s notable jet programs due to the International Association of Machinists and Aerospace Workers (IAM) work stoppage and the resultant pre-tax charges have been resulting in BA’s elevated leverage.

This is evident from its long-term debt-to-capital ratio compared to its industry.

BA’s Long-Term Debt-to-Capital

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Should You Buy or Sell BA?

Investors interested in Boeing should refrain from buying the stock before next Wednesday, considering the company’s elevated leverage. While its third-quarter results are expected to reflect some positive growth trends, backed by solid product deliveries, the downward revision in its earnings estimates and a negative Earnings ESP pose serious concerns. Despite possessing a discounted valuation, investors have already been losing confidence in this stock, as evident from its year-to-date price performance.

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The Boeing Company (BA): Free Stock Analysis Report
 
Lockheed Martin Corporation (LMT): Free Stock Analysis Report
 
Embraer-Empresa Brasileira de Aeronautica (ERJ): Free Stock Analysis Report
 
Textron Inc. (TXT): Free Stock Analysis Report

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