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Boeing
BA-N
BUY ON WEAKNESS
Aug 25, 2023
Stock price when the opinion was issued
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The CFO recently made comments: the troubled 737 is closer to resuming production, as the 787 could increase production later this year. Really, the 737 is more important. Also, their ailing defence business is starting to stabilize and recover, though their commercial business could improve. Maybe cash flow will improve; there are signs it is already. They won't be hit by tariffs, because 80-90% of their supply chain is in the US. They have a half-trillion-dollar backlog Last Friday, the US Air Force awarded Boeing the contract for fighter jets. He'd like to see a few good quarters of stronger results, and it's early in this turnaround though it's getting its act together. Also, Boeing enjoys little competition and airplane demand is strong.
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He hopes their troubles are behind them but as an equity investor is not sure if he sees the light at the end of the tunnel yet. There are only three companies in the world that make planes and global travel is growing. It has some logistics issues and has received some significant slaps on the wrist by the transportation board. There is a lot of debt but the order book is pretty filled up. He thinks there has been some change in management.
BA is still down from its high pre-2019. BA of course experienced a significant headwind in the last few years caused by airline crashes and review of the MAX. BA’s sales recently just reached back to 2019 levels, but BA is still experiencing negative operating losses. The balance sheet has $39B in net debt. Total debt is around 4.2x times the trailing twelve-month cash flow of $9.2B. The company is still on its way to recovery, sales and bookings have accelerated into double-digit growth in recent quarters. The company expects to generate $3.0-$5.0B in free cash flow in 2023. Based on consensus estimates, EBIT is not expected to come back to 2018’s level until 2024. We are generally not a huge fan of turnaround stories, however, we think BA could have potential here. The stock is showing good momentum, and could benefit from lower interest rates (if and when) as well as a lower US dollar. We would be OK with a slow accumulation, keeping a position size small while it further builds on its operational recovery.
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