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Wall Street JournalThe Zacks Analyst Blog Highlights Boeing, Embraer, Lockheed and Textron
For Immediate Release
Chicago, IL – October 18, 2024 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: The Boeing Company BA, Embraer ERJ, Lockheed LMT and Textron TXT.
Here are highlights from Thursday’s Analyst Blog:
Buy, Hold or Sell Boeing Stock Ahead of Q3 Earnings?
The Boeing Company is scheduled to release third-quarter 2024 results on Oct. 23, before the market opens.
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.
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%.
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%.
As evident from the image, other notable stocks from the same industry outperformed BA's performance. Shares of Embraer, Lockheed and Textron 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.
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.
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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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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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