2023-06-14 20:08:52 ET
Summary
- The Boeing Company is seeing strong demand for its commercial solutions.
- Deliveries are increasing significantly.
- The return of the Boeing 737 MAX in China is trending favorably.
I provide monthly overviews for orders, cancellations, deliveries, and other order book mutations for The Boeing Company (BA). While the release of monthly orders and other order news does not always directly impact the stock price, it's important to keep track of orders and deliveries because this provides the smallest blocks of information from which we can assess how things are going for the U.S. jet maker and detect trends early on. The monthly pieces also are the building blocks for the longer term, making a careful study of the numbers extremely meaningful. In this report, I will be analyzing the Boeing orders for May 2023 as well as its deliveries.
Boeing Stock Performance
Boeing Stock Price Development | |||
Timeframe | Boeing | Performance | |
May | +0.9% | +0.3% | Outperformance |
Year-to-date | +14% | +13.6% | Market performance |
In May, Boeing outperformed the market. There was no major reason that justifies an immediate higher stock price, as most of the news and projections are extremely forward looking. What might have boosted the stock was the rate increase on the Boeing 787 program, which is Boeing’s wide body cash cow, despite current delivery delays. Additionally, there also are rumors that Cathay Pacific (CPCAF) is closing in on an order for the Boeing 777-8F. Year-to-date, Boeing also has been outperforming the broader market, but that outperformance has significantly narrowed since Boeing 737 MAX delivery delays became apparent.
Despite the near-term pressures, I have added to my position in Boeing, and that investment has not failed me so far. I am also eyeing Airbus SE (EADSF) stock, as its year-to-date performance has been stronger , but during the May month the stock underperformed the market. Either way, both stocks have outperformed the broader market and clearly demonstrate the appeal to invest in both names, though it needs to be said that Boeing’s stock price appears to be running ahead of its current fundamentals.
Why I Bought More Boeing Stock
One may wonder why I would even bother buying a stock that I believe is running ahead of its fundamentals. In my view, it is actually very simple: any stock price weakness offers an opportunity for the long-term investor. Buying BA stock has been an easier decision for the following reasons:
- Boeing has a backlog of over 5,000 airplanes valued at nearly $400 billion.
- Its net orders are up 10x compared to pre-crisis levels.
- The delivery profile is improving.
- The return of Boeing 737 MAX airplanes in China is trending strongly paving the way to deliveries and ultimately new orders from Chinese operators.
- Free cash flow will be used to reduce debt and cut interest costs.
- Boeing will open a fourth production line for the Boeing 737 MAX, which could see the company pushing single aisle production towards 80 airplanes a month in the second half of the decade.
While Boeing has a lot to catch up on to justify its stock price, I believe that just the above prospects do offer a compelling reason to position yourself for Boeing’s surge in cash flow. There will be hurdles along the way, as we saw in recent months, and the Defense business remains rather disappointing. However, the long-term picture remains bright, and you might actually miss the boat (or airplane) if you wait for Boeing to trade at justified prices.
Having watched the market during the pandemic and throughout the MAX crisis, one thing that became extremely clear is that it requires big crises to bring BA stock down, and at this time I don’t see a crisis or combination of crises that could once again bring Boeing down. Macroeconomic factors could become an issue, but even that should not have a huge impact if we were to compare it to the scale of the two other crises that Boeing has faced in recent years.
Results obviously fluctuate until a position is closed out, but my recent buy at the $201 level has already outperformed, with an 8% return compared to 6% for the broader markets.
Boeing May 2023 Airplane Order News
In May, Boeing booked 69 gross orders, marking a sequential increase of 35 orders, with 86% of the order inflow for single aisle jets and 14% for wide body airplanes:
- Air Niugini ordered two Boeing 787-8s.
- One or multiple unidentified customers ordered 59 Boeing 737 MAX airplanes.
- An unidentified customer ordered eight Boeing 787-9s.
During the month, the following changes were made to the order book:
- Air Niugini cancelled four orders for the Boeing 737 MAX.
- BOC Aviation (BCVVF) was identified as the customer for one Boeing 737 MAX.
- China Southern Airlines (CHKIF) was identified as the customer for one Boeing 777F.
- American Airlines Group ( AAL ) took over two orders for the Boeing 787-8 from Boeing Capital Corporation as the jets were deliveries.
- An order from Hong Kong International Aviation for six Boeing 777Fs was cancelled.
- An order from an unidentified customer for one Boeing 777-300ER was cancelled.
May was not an incredibly big month from gross order perspective, but the orders for 59 Boeing 737 MAX airplanes was certainly a welcome one securing around two months of production rates and little over a month at future rates. It might not seem big, but bagging these kinds of orders provides a diverse base to construct a production schedule and assess future rate increases. The order from Air Niugini covers half a month of production, and so it was not a huge deal, but overall we see 10 Boeing 787s being sold during the month, which is a month's worth of production at future rates as well.
So, we are seeing how Boeing is building the skyline and paving the road, from demand perspective, towards higher future production rates. Boeing also scrapped orders. The four Boeing 737 MAX cancellations from Air Niugini were more or less offset by the Dreamliner order when measuring against the value of the deal, while the cancellations for Hong Kong International Aviation was already anticipated, and the cancellation of one Boeing 777-300ER also does not come as a surprise.
During the month, Boeing booked 69 orders valued at $4.5 billion, while it scrapped 11 orders valued at $1.3 billion from the books, bringing the net orders to 58 orders with a value of $3.2 billion. A year ago, Boeing booked 23 orders and 9 cancellations, bringing its net orders to 14 units, with a net order value of $2.2 billion, marking a 45% increase in the net order inflow.
Year to date, Boeing booked 223 orders and 96 cancellations, bringing its net orders to 127 valued $11.8 billion. As a reference, last year Boeing booked 236 gross orders and 171 net orders valued at $13.6 billion. So, year-over-year, Boeing is trailing last year's figures, but with an air show coming this month it will be interesting to see whether Boeing has any sales in the pipeline. The record order from Air India will almost certainly be logged in June, as Air India shared that a pre-delivery payment has been made, indicating that a firm purchase contract is in place.
During the month, ASC 606 reduced by 59 units, 49 of which were for the Boeing 737 MAX, six for the Boeing 777, and four for the Boeing 787. ASC 606 adjustments adjusts for 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. During the month six orders for the Boeing 777 that were considered doubtful were indeed cancelled. Boeing currently has 717 orders for which the additional criteria are not met.
Boeing May 2023 Aircraft Delivery News
In May, Boeing delivered 50 jets compared to 26 in the previous month. The U.S. jet maker delivered 36 single-aisle jets and 14 wide-body aircraft with a combined value of $3.8 billion:
- Boeing delivered 36 Boeing 737 airplanes including 35 Boeing 737 MAX airplanes and one Boeing P-8A.
- Boeing delivered three Boeing 767-300Fs, one to FedEx ( FDX ) and two to UPS ( UPS ).
- Boeing delivered three Boeing 777Fs.
- Boeing delivered 8 Boeing 787s consisting of two -8s, 3 -9s and 3 -10s.
Boeing deliveries were strong during the month with 36 Boeing 737 deliveries, more than doubling compared to the previous month. This gives a strong indication that Boeing is receiving more conforming fuselages, and that inspections on already-built jets are progressing well.
Compared to last year, May delivery numbers increased by 15 units from 35 deliveries to 50 deliveries, while the value of those deliveries increased from $2.4 billion to $3.8 billion, displaying a favorable delivery mix. Single aisle deliveries increased by 6 units while wide body deliveries increased by 9, led by higher Boeing 787 deliveries. Year-to-date, Boeing delivered 206 airplanes valued $14.5 billion compared to 165 deliveries valued $10.9 billion last year.
The book-to-bill ratio for the month was 1.4 in terms of orders and 1.2 in terms of value, while the cancellation rate was 15.9% measured against the order inflow, and 0.2% when measured against the backlog. The book-to-bill ratio for the year is looking extremely strong, with a ratio of 1.1 measured by units and 1.2 measured by value. 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 400 to 450 Boeing 737 deliveries and around 70-80 Boeing 787 deliveries. Overall, I'm expecting around 535-595 deliveries.
How Do Boeing Airplane Deliveries Compare To Airbus?
Boeing delivered 50 airplanes to customers in May, while Airbus delivered 63 airplanes. In the first five months of 2023, Boeing delivered 206 jets compared to 244 for Airbus. Boeing and Airbus have been delivering roughly the same number of airplanes in the first quarter, but due to the issues with the Boeing 737 MAX, the U.S. jet maker is now trailing its European rival. What, however, should be noted is that Boeing is seeing the better growth numbers in deliveries, up 25% compared to 3.3% for Airbus.
Conclusion: Boeing Stock Is A Buy For the Future
Boeing stock has gained over 75% over the past 12 months while its deliveries are not up as much, and its free cash flow growth will be up at most 61% this year according to its guidance. So, you could say that the company’s stock price grew ahead of its performance and that doesn’t make the stock attractive in the near-term.
However, by 2024 the free cash flow should have more than doubled compared to the 2022 free cash flow and be positive cash flow. This free cash flow should enable Boeing to significantly deleverage, which adds to the long-term appeal of the stock. So, in the short term, Boeing stock likely is more a hold, but I would say that the long-term drivers are what make the stock attractive - and that also means that at present you cannot buy Boeing stock at a discount.
What we are currently already seeing is strong demand for commercial airplanes and a strong increase in delivery volumes. Seeking Alpha authors have a Hold rating on the stock, while Wall Street analysts have a Buy rating .
While investors might not be wrong for softening their bullish view on Boeing for the short term, I do think that if you focus on what Boeing might or might not deliver in the second quarter, you will eventually miss the bigger picture for this year and also the bigger picture for the longer term. Challenges remain in all time frames, but the trends and outlooks are positive, and they're bigger positives than the near-term pressures Boeing faces.
Valuing Boeing at 16 to 17 times free cash flow generation gives a $265 to $280 price target based on the outlined trajectory towards the mid-decade targets. So, Boeing is certainly not cheap, but around 30% upside does exist as it executes on its targets. With the industry and stock market being forward-looking, that price target could be hit earlier than mid-decade on positive momentum for Boeing stock.
For further details see:
Boeing Stock: Why I Am Buying More