Boeing Co (NYSE:BA) is one of the country’s largest defense contractors and over a century-old company. Based in Chicago and serving a global customer base, it’s heavily focused on aerospace, telecommunications, and defense. But it couldn’t defend itself from the coronavirus crash, so is Boeing stock a good investment?
The commercial airline industry tanked during the COVID-19 market crash in March 2020. Global travel restrictions and lockdowns squeezed the industry’s profitability potential. As the pandemic drags on, most airlines have cut back airplane orders through 2025, leaving airplane manufacturers empty handed.
And Boeing’s struggles didn’t even start with the virus – the company’s 737 MAX aircraft was grounded in May 2019 after several high-profile accidents. This cost the company over $15 billion in expenses as it worked through recertification from the Federal Aviation Administration (FAA) to get its planes back in the air.
It worked closely with carrier partner Southwest Airlines (NYSE:LUV) on a prolific marketing campaign to re-secure consumer confidence. But in return, Southwest played hardball for a discounted order that will cut into the jet maker’s profits.
Let’s check Boeing’s black box to find out if it has the resources to recover or if it will leave investors stranded.
Boeing Is Much More Than A Plane Manufacturer
Boeing is a major manufacturer, designer, and servicer of commercial jetliners, satellites, missiles, rockets, and military aircraft. It has three main operating segments:
· Commercial airplanes – Boeing develops, builds, and markets jet aircraft for commercial airlines. It also provides support services for its fleet.
· Defense, space, and security – Boeing has a variety of government contracts to research, develop, and produce both manned and unmanned military aircraft and weapons systems.
· Global services – Boeing provides after-sale service to all its commercial and defense customers.
Commercial airplanes were once a prominent part of the company’s revenue and earnings until 2020. The combination of the 737 MAX scandal and global pandemic dropped the company from $1.2 billion in net earnings in Q3 2019 to a $466 million loss in Q3 2020.
The company leaned financially on its defense contracts through 2020, which became nearly half its revenue and over two thirds of its operating earnings. And even that cash cow is in jeopardy with a Democrat White House Administration set to take office.
One of President Trump’s final acts in office was to veto the country’s $740 billion defense budget for 2021. That set the stage for what could be slowed defense spending that hits Boeing with a haymaker while it’s already dazed.
Is Boeing Stock A Good Investment?
Boeing ended 2020 with a market capitalization of over $120 billion. Share prices crashed to a 52-week low of $89.00 before rebounding to over $200 by year end. It still has a long way to go from the pre-pandemic trading level of around $350.
The company generated $42.85 billion in revenues for the first nine months of the year. Still, it reported $4.72 billion in losses for the period.
Although the airline industry pulled back orders, Boeing still got plenty of 737 MAX orders in 2020. Besides Southwest, which has an all-Boeing fleet, the company sold jets to Alaska Air Group (NYSE:ALK) and Ryanair Holdings (NASDAQ:RYAAY) by year end.
Ryanair’s order alone totals $9 billion. And Alaska Airlines CEO Brad Tilden issued a statement confirming his airline’s continued Boeing partnership.
These were all the signs bulls needed to start investing in the stock again. It already proved in 2017 that it could double its market value, and Boeing could be poised for a comeback and then some over the next four years.
Of course, there is the chance of turbulence ahead which could mean the company is in for a bumpy ride.
Will More Turbulence Hit Boeing?
The biggest problem Boeing has is the strangled airline industry. Some estimate it could be years before air travel volume returns to former levels. Major business events like CES and SXSW are still virtual in 2021. This eliminates a huge section of business travelers.
Many major airlines like Delta (DAL) announced they are cutting back airplane orders through 2025. This leaves Boeing with a backlog of planes to sell, and they are not guaranteed to do so.
And then there’s Biden taking over the White house from Trump. This change of the guard puts a liberal president in charge, and the party leans against defense spending, at least publicly. Boeing could see orders cut from the primary business segment supporting it financially.
Even if it succeeds, Boeing could continue to underperform the market. The heavily tech weighted DJIA and S&P 500 experienced big gains, easily surpassing old highs. But Boeing has yet to recover to its prior highs. That puts its investors at a disadvantage.
And Boeing isn’t alone.
Boeing Faces Competitive Threats Too
These back-end suppliers had no buyers during a tight market, and that leaves all of them hungry to grab sales and market share.
Some of these competitors could unseat Boeing as the top defense contractor, and it really needs to push on its government contracts to get it through the next five years.
Should the company miss a step, it could fall further behind the rest of the market.
Is Boeing Stock A Good Investment? The Bottom Line
Boeing faced stormy weather in 2020. Already reeling from the scandal surrounding its 737 MAX aircraft, the pandemic accentuated the problem as airports around the world closed. COVID travel restrictions stretched into 2021, much longer than originally anticipated.
Airlines pulled their orders back for the next five years, but they’re still buying planes. If Boeing’s sales and marketing team stays aggressive, they can bounce back. Otherwise, Boeing may lose its market leadership position to a hungrier firm.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.