Boeing Cleared For Takeoff In Earnings Turnaround

Key Points

• Manufacturing stocks have seen their prices decline as recession fears hit all-time-highs, and the US manufacturing PMI index lags, signaling economic contraction. 
• Boeing is on a contrarian path, upping its delivery guidance and achieving it. Investors will be pleased to know that expanding orders and backlog could bring multi-year high free cash flow levels for the company.
• Analysts see further upside as these end-of-year targets are set into reality; with the possibility of a reinstated dividend, investors may want to prepare for these key buying ranges.

Manufacturing and basic materials stocks like MMM NYSE: MMM have been declining for the past two years as fears of a coming recession in 2023 brew in the minds of the market and consumers alike. It is not encouraging to see the United States manufacturing PMI index read below 50% (signaling economic contraction) since November 2022, following a year-long decline. Continued interest rate hikes on the part of the FED as an attempt to fight inflation pose a risk of an ensuing continuation of these contractionary trends. 

One company that defies (and has been defying) the downward trend in manufacturing is Boeing NYSE: BA, as it reported its first quarter 2023 earnings earlier today, with shares advancing by as much as 4.4% during the session and closing the day at 0.42%. Markets expressed immediate optimism toward the company's financials, but more importantly, the trends that total expected deliveries may imply for the economy and travel industry.

Cruising Altitude 

After experiencing a grueling period of accusations and groundings with the 737 Max, Boeing stock fell from its 2019 peak of $446 to its 2020 COVID trough of $90. While most investors lost hope while digesting stock losses and significantly slower deliveries from the company, those who held on are ready to celebrate a complete 180-degree turnaround.

Deliveries fell to 157 as of December 31, 2020, while the stock found its bottom and fear of the travel industry going cold was at a peak. At the end of 2022, deliveries reached a total of 480 to mark more than a five-year high, and management continues to expect strong momentum for the end of the year 2023.

In the earnings presentation, investors will be pleased to read management's guidance for 470 to 530 total deliveries combining the 737 Max and 787 Max jets. These figures reflect the active demand from airline operators and other commercial uses from mail and postage. This dynamic may bring calm to markets weighing the risk of a severe recession. Delivering on these expectations, management told investors, would imply free cash flow ranges between $3 to $5 billion, which can - and should - be used to lower the company's outstanding debt balances and buy back shares after needing to dilute investors during the negative operating income years since the 737 groundings.

Bringing these expectations for the year to a more concrete sense, Boeing currently has a backlog of $411 billion, including over 4,500 commercial airplanes. Delivering 130 planes in the first quarter gave CEO Dave Calhoun the confidence to state, "We are progressing through recent supply chain disruptions but remain confident in the goals we set for this year, as well as for the longer term. Demand is strong across our key markets, and we are growing investments to advance our development programs and innovate strategic capabilities for our customers and our future."

From a numbers perspective, Boeing increased its capacity utilization to 51.7%, up from the previous quarter's 48.6%, signaling a tick-up in demand for their products. Accounts receivable, supporting the demand rise trends, rose by $345 million, reflecting the new deliverables for the coming quarter. 

Renewed Upside

Revenues for the 12-month lookback period were up 28.1%, and gross margins (despite rising input costs) rose to 10.7%. Boeing analyst ratings see the momentum, carrying a consensus price target of $223.59 per share and also being rated a 'Moderate Buy' recovering from 2020's 'Hold' and 'Sell' ratings.

While Boeing's dividend was cut in 2020 as a reflection of 737 groundings, COVID-19 breakouts, and sticky negative free cash flows, management guidance toward recovering (and growing) free cash flow figures may allow investors to see a new dividend payout reinstated. Moreover, considering the previously historical 2.00% to 2.50% dividend yield, markets could hold Boeing management accountable to reinstate the same standard of returns, no doubt aiding recovery in the stock price.

And speaking of stock prices, investors today may notice a strong resistance hitting Boeing stock around the $210-$220 mark, not to worry, as a possible pullback could soon turn prices back into a critical support channel ripe for acquisition. While a bit wide, the $170-$190 range acts as a solid support range for the stock, seeing the highest volume profiles back in 2020 when investors seemed to have no issues handing over blank checks for a company still in the middle of a storm.

Today, the future appears brightest in a while for Boeing, so those same investors that missed out on the last time the stock hit these prices may be able to receive the seldom redemption markets give out.