BA - Boeing Wins Big Surprise 777X Order

2023-12-19 15:21:12 ET

Summary

• Boeing's stock has shown strong outperformance in November due to order inflow from the Dubai Airshow and increased realization of China's demand for Boeing airplanes.
• Knowledgeable long-term and data-driven analysis is crucial for investors to identify compelling entry points and potential stock price appreciation.
• Boeing's orders and deliveries in November indicate strong demand for commercial airplanes, with a backlog of nearly 6,000 airplanes valued over $450 billion.

The Boeing Company's (BA) stock has been enjoying some positive momentum in recent weeks and to some investors that might be remarkable. I have received many messages from readers and investors pointing out that the financials are not necessarily moving at the desired pace. While I would generally agree with that observation, after a decade of covering stocks and in particular Boeing what I do know is that the stock price often moves before the financials show strong improvement and sometimes even before Wall Street analysts turn positive on the stock. The key to uncovering the compelling entry points is a strong core of data analytics and knowledge that goes beyond superficial looks at news items or financials and presenting that as deep dive analysis to the reader. In this report, I will be analyzing the Boeing orders, deliveries and order book mutations for November.

The Importance Of Knowledgeable Long-term And Data Driven Analysis for Boeing Investors

One of the ways to enable investors to position way ahead of the market is by analyzing the orders and deliveries on a monthly basis. The orders and deliveries provide the smallest building blocks from which we can assess upward pressure on commercial airplane programs where orders signal longer-term demand and deliveries are an indication of cash flow and near-term demand.

How important a knowledge and data-driven approach is to investor returns can be demonstrated by two reports I wrote. In October, after Boeing reported earnings, the stock tanked but I pointed out the opportunity in Boeing stock and so far that has paid off with the stock surging 47%. While analysts have been seeing an investment opportunity related to a restart of deliveries in China, I have closely watched this subject for well over a year and highlighted the opportunity in September resulting in an 83% return for investors. So, the fact of the matter is that absent thorough analysis and know-how, you might be missing out on significant stock price appreciation.

Boeing Stock Shows Strong Outperformance

Boeing stock showed strong outperformance in November and I would attribute that to two items. The first one is the order inflow from the Dubai Airshow that I discussed in a separate report . The second item is the realization that China eventually will need Boeing airplanes to meet its demand for commercial airplanes. That reality is now finally kicking in with investors as well as analysts.

Why I Continue To Buy More Boeing Stock

The results we see now at Boeing are really not worth your investment, yet I am currently accumulating Boeing shares. One may wonder why and that is also why I have been explaining my reasons to keep adding stocks in recent reports covering the monthly order and delivery overview. Those reasons are actually very simple and some elements that I previously marked as reasons to buy the stock did materialize. The overarching reason is that Boeing's business is built on strong long-term demand trends. Going into more detail, the following reasons to buy the stock are:

• A commercial airplane backlog of nearly 6,000 airplanes valued at over $450 billion.
• A strong demand environment for commercial airplanes.
• Improving delivery profiles despite the near-term challenges faced.
• The Boeing 737 MAX return to service of the installed base in China has been completed, which was a major milestone I described as a prerequisite for new deliveries and cash flows to come back alive.
• Boeing sees momentum for wide-body as well as narrow-body sales that will drive down its net debt position and help the company deleverage the balance sheet.

Boeing Airplane Order News In November 2023: Emirates Goes Big

While the Dubai Airshow provided a significant order inflow for Boeing in November, sequentially orders decreased from 123 to 114 gross orders. The mix, however, was very favorable with 92% of the orders being for wide-body airplanes and 8% for single-aisle jets bringing the order value to $19.2 billion:

• Emirates ordered 90 Boeing 777X airplanes consisting of 55 Boeing 777-9s and 35 Boeing 777-8s.
• An unidentified customer ordered five Boeing 737 MAX airplanes.
• BOC Aviation Limited ( OTCPK:BCVVF ) ordered four Boeing 737 MAX airplanes.
• The USAF ordered 15 Boeing KC-46A tankers.

During the month, the following changes were made to the order book:

• Atlas Air was identified as the customer for two Boeing 777Fs.
• Emirates converted orders for 30 Boeing 787-9s to orders for 15 Boeing 787-8s and 15 Boeing 787-9s.
• Royal Air Maroc was identified as the customer for two Boeing 787-9s.
• An unidentified customer cancelled orders for 10 Boeing 737 MAX airplanes.

Boeing booked a total of 114 gross orders valued $19.2 billion with a net order tally of 104 airplanes valued $18.7 billion compared to 21 net orders valued $1.3 billion. So, we saw roughly 5x the number of net orders but almost 15x times the value as the order mix was heavily tilted towards wide-body orders. What should be noted is that not all orders that Boeing announced during the Dubai Airshow have been added to the order tally. Some missing orders include the order from flydubai for 30 Boeing 787s and orders for the Dreamliner from Royal Jordanian while an upsize in the Dreamliner orders from Emirates was missing and the order that Boeing announced from Royal Air Maroc during the airshow turned out to be a customer reveal and not an order that would add new value to the backlog.

To date, Boeing has booked 1,085 gross orders and 140 cancellations bringing the net orders to 945 orders valued $87.6 billion. In the first 11 months of 2022, Boeing booked 571 net orders valued at $41.5 billion. The increase in net orders can be attributed to several large orders such as the order from Air India for 220 airplanes and Ryanair Holdings plc ( RYAAY ) signing for 150 Boeing 737 MAX jets.

ASC 606 adjustments decreased by 37 units during the month, 32 for the Boeing 737 MAX and five for the Boeing 787. ASC 606 adjustments tally orders for which a purchase agreement exists but additional requirements beyond the existence of a purchase contract are not met. An increase means that more orders are doubtful, while a decrease means that the additional requirements are met or the order that was considered doubtful was cancelled. Boeing currently has 590 orders for which the additional criteria are not met.

Cancellations during the month were 8.8% measured against the order inflow and 0.2% against the backlog showing a strong demand environment for commercial airplanes.

Boeing Commercial Airplane Deliveries Tick Up In November 2023

In November, deliveries increased from 34 airplanes to 56 airplanes consisting of 46 single-aisle jets and 10 wide-body airplanes valued at $3.9 billion:

• 46 Boeing 737 airplanes were delivered including 45 Boeing 737 MAX airplanes and one P-8A Poseidon.
• Boeing delivered two Boeing 767s consisting of one baseline airplane for tanker configuration and one freighter.
• Boeing delivered two Boeing 777Fs.
• Boeing delivered six Boeing 787s consisting of one Boeing 787-8, four -9s and one -10.

Single-aisle deliveries showed a significant uptick and I consider that to be a positive. As we are nearing the end of the year, there is a usual bump in deliveries, but I believe we are also seeing a recovery in deliveries after a year filled with supplier-induced challenges for the Boeing 737 MAX program. The improvement of deliveries could be an indication that we will be seeing an annual effect of recovery in 2024. In the comparable period last year, Boeing delivered 48 airplanes valued at $3.8 billion, so we are seeing an improvement in the delivery volumes and this improvement is also visible in the year-to-date numbers as year-to-date deliveries stand at 461 and are valued at $34.3 billion compared to 411 deliveries valued at $28.8 billion a year ago. So, we see a 12% increase in deliveries while a favorable mix led to 19% higher delivery value. It is not what Boeing had hoped for at the start of the year, but what is clear is that there is a clear recovery process going on that will help the company reduce inventories and improve the balance sheet.

The book-to-bill ratio for the month was 2.0 in terms of orders and 4.9 in terms of value. The book-to-bill ratio for the year is looking extremely strong, with a ratio of 2.4 measured by units and 2.9 measured by value which indicates an uptick in book-to-bill measured by value driven by the Boeing 777X order from Emirates. As I noted previously, we're looking for book-to-bill ratios higher than one, but even when that's achieved, these ratios should also be placed in context, as we see strong demand but significant pressure from the supply side to translate orders into deliveries.

What Is Boeing's Delivery Target For 2023?

For 2023, Boeing has not provided an official delivery target, but the company expects 375 to 400 Boeing 737 deliveries and around 70-80 Boeing 787 deliveries. Overall, I'm expecting around 520 deliveries for the year.

How Do Boeing Airplane Deliveries Compare To Airbus?

Boeing delivered 56 airplanes to customers in November, while Airbus SE ( OTCPK:EADSF , OTCPK:EADSY ) delivered 64 airplanes. Year-to-date, Boeing delivered 461 jets compared to 623 for Airbus. Boeing and Airbus have been delivering roughly the same number of airplanes in the first quarter of 2023, but due to the issues with the Boeing 737 MAX production, the U.S. jet maker is trailing its European rival since the end of the second quarter. The positive that Boeing can lean on is that its relative growth in delivery numbers is stronger: Boeing delivery numbers are up 12% while Airbus deliveries are up 10%.

Conclusion: Boeing Attractive For The Long Term

If you want to invest in Boeing for its current financial strength, there is not much reason to do so as the company has a balance sheet that is loaded with debt and inventories. However, just from assessing orders and deliveries, we can already see that there is strong demand for airplanes that support cash flow generation going forward and delivery numbers which support current cash flow generation are also improving. As we enter 2024 in a couple of weeks, I believe that we should start seeing the positive annualized impact of the recovery that Boeing is currently executing and that provides a very compelling investment case for long-term oriented investors.

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