Summary
- The Boeing Company outperformed estimates on its free cash flow for FY22, solidifying Boeing's remarkable comeback from June 2022's lows.
- China's economic resurgence gains momentum as Beijing pushes for increased flight capacity, signaling a determined effort to recover and grow.
- Bold production plans for the 737 and 787 were announced at Boeing's recent Investor Day, as management sets sights on ramping up output through 2025/26.
- The next market pullback presents a golden opportunity for investors waiting to add to their Boeing Company positions.
The Boeing Company ( BA ) reported its FQ4'22 and FY22 earnings release earlier today.
The company's deliveries and backlog show promise, corroborating the bottoming process in BA's price action in June 2022. Moreover, Boeing also outperformed the consensus estimates in its operating cash flow ((OCF)) and free cash flow ((FCF)) metrics.
While some investors could point out the miss in its adjusted EPS metric, the company also highlighted that it had to contend with "abnormal costs and period expenses, including R&D" in its commercial segment.
Notably, Boeing accentuated that it will continue to scale its 737 and 787 production through 2025/26 to propel the company toward the outlook proffered at its Investor Day in November 2022.
Boeing posted commercial deliveries of 152 airplanes in Q4, up nearly 54% YoY and 36% QoQ. It's the company's strongest slate of quarterly deliveries since Q2, suggesting improved momentum despite worsening macroeconomic headwinds.
As such, it helped Boeing notch Q4 commercial revenue of $9.22B, up 94% YoY, accounting for nearly 46% of Boeing's total Q4 revenue. However, the segment continues to face operating losses, posting a segment operating margin of -6.8%.
Despite that, Boeing reported a marked improvement in its backlog, posting an increase of 7%. In addition, its Commercial backlog was up more than 11% YoY, mitigating the weaker performance in Defense.
The profitable Defense segment (Q4: 1.8%) and Global Services (Q4: 13.9%) helped to mitigate the operating losses in its Commercial segment. Moreover, Boeing has been making encouraging progress to boost production, improving its ability to deliver its aircraft and improve its cash flow position.
The company telegraphed its confidence in a recent commentary, with CEO Dave Calhoun articulating the tailwinds from China's reopening. Calhoun "expects the nation's airlines to spend the next six months to return their 100 or so Max jets to service, and after that point, deliveries of new aircraft would be on the table."
We believe that Boeing investors have reason to be optimistic, as China Southern Airlines returned the 737 Max to commercial service in January. Despite the increased competition from Airbus ( EADSF ) and its locally-produced C919 aircraft, Beijing will likely leverage Boeing's deliveries to bolster the nation's flight capacity .
With China's policymakers determined to return its economy back to growth , we believe President Xi Jinping will likely leave no stone unturned. As such, it augurs well for continued deliveries from Chinese carriers, helping to improve Boeing's free cash flow ("FCF") position.
However, given BA's significant and sharp recovery from its June 2022 lows, we believe market operators have likely anticipated a marked improvement in Boeing's operating performance.
BA surged more than 90% from its June 2022 lows toward its recent January highs this week. It also lifted its NTM EBITDA multiple significantly to 24.5x, well above its peers' median of 13.2x (according to S&P Cap IQ data).
Hence, savvy investors who capitalized on the market panic in June have a significant margin of safety against any post-earnings pullback. Therefore, we don't think it's likely that these investors will be compelled to bail out just because Boeing missed the Street's estimates on its adjusted EPS metrics.
However, that doesn't mean investors who missed buying the capitulation earlier should join the recent buying frenzy.
BA still looks well-primed for a deeper pullback, even though we don't expect June lows to be revisited. But, patience is necessary for investors who demand a generous margin of safety.
Notwithstanding, The Boeing Company has proved that it could execute, which should also be lifted by the tailwinds emanating from China's commitment to driving a rapid and sustained economic recovery in 2023.
Rating: Hold (Reiterated, but on the watch for a rating change).
For further details see:
Boeing: The Gift Is Coming