Boeing’s share price has not been faring well recently and as the coronavirus pandemic has crushed the airline sector, so too has the planemaker been grounded.
With the Boeing 737 Max model aircraft having been grounded for more than a year, following two fatal crashes, a worldwide lockdown couldn’t have come at a worse time for the aeroplane manufacturer Boeing [BA], and investors in the company’s share price.
As coronavirus pandemic restrictions force people to travel less, demand for aircraft has nosedived. Boeing’s already embattled share price slumped throughout February and March, dropping 53.9% in the first quarter. Since the end of March, it has slid further still and currently sits at $130 (as of 28 April).
What will Boeing upcoming earnings call, due on the 29 April, show share price investors?
What’s happening with Boeing’s share price?
Boeing last issued its earnings results at the end of January. The aerospace manufacturer reported earnings per share of -$2.33 for the quarter, missing analysts’ estimates of $1.47 by $3.80.
The report showed a negative return on equity of 70.76% and a negative net margin of 0.83%. Despite analysts predicting its quarterly revenue to be $21.76bn, the manufacturer actually reported revenue of $17.91bn. During the same period last year, Boeing posted $5.48 EPS and its quarterly revenue was down 36.8% on a year-over-year.
The consensus estimate for Boeing’s first-quarter earnings is $2.08, according to Zacks, representing a 165.8% decline YoY. Meanwhile, the firm notes that the consensus estimate for revenue of $6.37bn would represent at 46% YoY decrease, the firm says.
Boeing's estimated YoY revenue decrease
Airlines facing headwinds
Since January there has been an 87% reduction in the amount of daily international flights and more than 60% of the world’s commercial aircraft are currently grounded, according to the Financial Times.
The damage to the airline industry is already starting to show. On Monday, Australia’s second-biggest airline, Virgin Australia went into administration after failing to secure a bailout from the government of AU$1.4bn.
Reduction of daily international flights since January
With little to no revenue, airlines are cutting costs, drawing significant credit lines to boost their liquidity and are calling for billions in government aid. But this might not be enough. The Centre for Aviation, stated in a report that “by the end of May 2020, most airlines in the world will be bankrupt.”
This has hit Boeing in the form of order cancellations. Although the manufacturer took a total of 49 new orders in Q1, it received 196 cancellations — 150 of which were made in March alone. The cancellations have resulted in a negative order count of 144 aircraft, compared to a positive count of 149 aircraft in Q1 2019, according to Investor’s Business Daily.
Furthermore, analysts at investment bank Cowen & Co. have warned that "additional deferrals/cancellations are likely in coming months”.
As if all this wasn’t bad enough for the aviation industry, oil prices reached a historical low earlier this week with the cost of jet fuel falling faster than petrol or diesel.
“One thing that kept the industry aloft during the great financial meltdown [in 2008] is fuel prices actually rose,” Richard Aboulafia, aviation analyst and vice president of Teal Group, told CNBC.
“One thing that kept the industry aloft during the great financial meltdown [in 2008] is fuel prices actually rose” - Richard Aboulafia, aviation analyst and vice president of Teal Group
High-oil prices encourage the purchase of more fuel-efficient aircraft, which in recent years is something Boeing has been raking in orders for.
What does this mean for Boeing?
Citigroup analyst Jonathan Raviv downgraded Boeing shares to neutral on Monday but raised the target price from $150 to $175, according to Barron’s. It’s been made clear that his concerns lie with the commercial arm of Boeing, rather than its defence side.
As the number of international travellers has grown over the past few years, so too has the demand for new aircraft — a trend that was expected to continue. But in the wake of the coronavirus, Raviv expects aerospace demand will stay low for a considerable length of time.
He is not alone. Among 23 analysts polled by CNN, the consensus rating was to hold the stock, with 14 giving the rating and 8 rating it a buy. The 12-month median price target price target among 20 analysts was $162.50, representing a 25% upside.
|Operating Margin (TTM)||-2.75%|
|Quarterly Revenue Growth (YoY)||-36.80%|
Boeing share price vitals, Yahoo Finance, 29 April 2020