Boeing (NYSE:BA) is scheduled to report its second-quarter results July 24 before the markets open. They’re not going to be pretty with the consensus estimate calling for a 46% decline over the same time last year. How will Boeing stock react to the news? Only time will tell.
It’s possible that most of the damage has already been priced in. Year to date, BA stock is up 10.8% through July 9, with 22% of the gains coming from its $8.22 annualized dividend payout. By comparison, the SPDR S&P 500 ETF (NYSEARCA:SPY) has a total return of 20.0%, double the aircraft manufacturer’s performance so far in 2019.
Boeing stock hit an all-time high of $446.01 on March 11, the day after the crash of an Ethiopian Airlines Boeing 737 Max 8, Boeing stock closed 11% lower at $397.73, drifting as low as $332.49 in May before recovering.
Where it goes after earnings is anybody’s guess. Long-term, I believe Boeing is an excellent stock to own because air travel is going to continue to increase in demand over the next 10-20 years as emerging markets grow their middle class.
The question for investors is whether you should buy Boeing stock before its earnings announcement after they’re announced, or never at all.
Buy Boeing Stock Before Earnings
As I write this, Boeing stock is down 21% from its 52-week and the all-time high. Is that enough punishment for a company that’s struggled in the aftermath of two disasters in less than a year.
It’s not so much that Boeing doesn’t want to get to the bottom of what’s wrong with its aircraft; it’s that it could be structurally incapable of it. That’s the scarier of the two alternatives.
The first half delivery numbers suggest Airbus (OTCMKTS:EADSY) is taking full advantage of Boeing’s woes, delivering 389 planes in the first six months of the year, 63% more aircraft than its biggest competitor.
To make matters worse, June was Boeing’s third consecutive month with no new 737 Max orders. The aircraft maker delivered a total of 24 737s in the second quarter, most, if not all, were the older 737 NG. That’s down from 89 737s in the first quarter and 137 in the second quarter.
Although it was able to announce a June order for 200 737 Max’s by British Airways’ parent, International Consolidated Airlines Group, it continues to see defections to Airbus.
Most recently, Saudi-based flyadeal canceled a provisional order for 30 737 Max’s, opting to buy Airbus’ A320 instead.
With the production of the 737 Max down to 42 from more than 200 per month, the backlog of 4,600 737s is beginning to look like a number that could fall dramatically if more airlines cancel provisional deals to buy the aircraft.
So, if you’re a firm backer of American-made aircraft and Boeing itself, as I am, you have to figure the bad news is fully worked into its stock price.
Unless the 737 Max is never allowed to fly again, which seems unlikely, the “sell on news” effect that typically happens with an earnings report, good or bad, is unlikely to have the adverse impact some might think.
Worst case scenario: Boeing stock does fall and you buy some more.
Buy After Earnings
Better safe than sorry.
Although investors know most of the bad news to hit on earnings day, what CEO Dennis Muilenburg has to say about Airbus’ deliveries overtaking Boeing for the first time in seven years still is critical.
If investors get any sense that Boeing is worried about its European competitor, the stock could tumble even further on this revelation.
I’m not saying Muilenburg feels this way. I’m merely suggesting a possible scenario out of left field that puts shareholder confidence at risk. Frankly, I believe that Boeing stock’s held on quite well given the problems surrounding its bestselling plane.
The last time I wrote about Boeing in April, I stated that things are likely to get worse before they get better. At the time, it was trading around $365. Down another 4% since then, it might have a little more pain to endure before it returns to the $400s.
Here’s what I said about Boeing in April:
“Now is not the time to be guessing about the future. Has it bottomed? I don’t think so.
“When will we know it’s bottomed? When the 737 Max is back flying and enough time has passed to allow investors to forget what’s happened over the past six months.”
While Boeing’s CEO has been as contrite as possible in this scenario, the consumer is going to be hardpressed to forget about the potential risks of flying a 737 Max. That said, time does heal all wounds.
Smart investors will be buying on any weakness after earnings.
If you’re considering Boeing stock, but aren’t sure we’ve hit bottom, I’d recommend waiting until after the July 24. If it goes up, it likely won’t rise by much, and you get still get in at a reasonable price.
If you believe the 737 Max won’t fly again, you should definitely not buy. Not now, not ever.
At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.