The Boeing Company (BA) Is a Solid Buy after Earnings

There’s been a lot of buzz around The Boeing Company (BA) after the company’s 737 MAX airplanes were grounded in the wake of two fatal crashes involving the aircraft. Since then, it has been determined that a software glitch was partly responsible for the two crashes.

Essentially, when a plane slows down, its software will purposely trigger a nosedive for 9.7 seconds until the plane picks up speed. That’s called the trim, which is the little wheel in the cockpit. If the pilot is going to pull the nose up, he has to turn the trim off. Unfortunately, that wasn’t successful in the recent crashes. This was partly due to the software malfunctioning and partly due to untrained pilots.

The reality is that Boeing’s new 737 MAX airplane is not like its older counterparts. The plane’s center of gravity is very different and the engines are a lot bigger. As a result, the 737 MAX airplane’s software needs to be enhanced to account for these differences, and pilots need to be retrained on the differences. Fortunately, Boeing is taking steps to rectify the issues.

But, in the meantime, the recent groundings have certainly impacted Boeing’s business.

Given the grounding, Boeing only delivered 149 commercial airplanes in the first quarter. That’s down 19% from the 184 commercial airplanes delivered in the first quarter of 2018. And that drop in first-quarter orders weighed on the company’s earnings and sales.

The Boeing Company reported its first-quarter earnings on Wednesday. Company management revealed that the grounding of the 737 MAX airplanes significantly impacted its results, as it missed both top- and bottom-line forecasts.

For the first quarter, Boeing reported core earnings of $3.16 per share and revenue of $22.9 billion. The consensus estimate called for earnings of $3.33 per share on revenue of $23.51 billion. So, Boeing posted a 5.1% earnings miss and a 2.6% revenue miss.

Also, due to the grounding of the 737 MAX airplanes, Boeing did not provide updated 2019 guidance. The company noted that it’s working hard on the software enhancements for the 737 MAX, and has performed more than 135 test and production flights with the updated software. Once the 737 MAX airplanes receive final certifications and are back in the air, Boeing will issue new 2019 guidance.

The company did note that its current back log remains at a solid $487 billion.

Despite the earnings and sales misses, BA held up well. In fact, it opened about 1% higher on the results and then closed relatively flat. It also stayed mostly in the green today, despite the fact that the Dow fell almost 300 points early this morning on an earnings miss from 3M Company (MMM).

Personally, I look for the stock to rebound strongly in the upcoming weeks and months, as Boeing continues to fix its software glitch and gets its airplanes back in the air. The fact of the matter is that the 737 MAX airplanes offer something that no other airplane does: fuel efficiency. So, I am confident that airlines will continue to buy those planes. And there will be a lot of software upgrades coming to make the planes safer and more training for the less-experienced pilots.

In addition, Boeing is one of the biggest stocks with stock buybacks, and it’s consistently increased its dividend. In fact, it’s paid dividends 85 quarters in a row. That’s great news for dividend growth investors.

There’s a lot to like about the company, which is why BA continues to see good buying pressure. The stock currently holds a “B” rating in both Dividend Grader and Portfolio Grader, making it a good buying opportunity for those looking to take advantage of its recent dip.

More Louis Navellier



RSS Feed

Little Book

InvestorPlace Network