Is Boeing Stock A Buy Ahead Of Q1 2016 Earnings?

  • Boeing is due to report Q1 2016 earnings on April 27, after market close.
  • Boeing is  expected to report poor revenue growth due to weak demand for its long-range planes.
  • However, Boeing's long-term investment thesis remains intact mainly due to consistent growth in air traffic.

Giant aircraft maker Boeing Co (NYSE:BA) is due to report Q1 2016 earnings on Apr. 27, 2016 before market open. Wall Street consensus calls for revenue of $21.90B, good for -1% Y/Y growth and EPS of $1.87, good for -2% Y/Y growth. Meanwhile, there is an earnings whisper that Boeing might post EPS of $1.92, good for a 2.7% Y/Y growth.

Boeing did not offer specific Q1 guidance but issued full-year 2016 guidance as follows:

  • 740-745 airplane deliveries for the full year, 2.5% lower compared to 2015 deliveries. The company attributed the lower expected deliveries on lower production for 737 planes and a production cut on 747.
  • 2016 core earnings in the range of $8.15-$8.35, which works out to 10% year-over-year decline at the mid-point and way lower than Wall Street consensus of $9.43.

Boeing has managed to exceed earnings estimates by a good margin in the last four consecutive quarters. During the fourth quarter, the company beat on the top line by $50M and exceeded EPS consensus by $0.34.

Boeing Earnings Surprise History

Quarter End
Per Share
EPS* Forecast
Dec2015 01/27/2016 1.6 1.35 18.52
Sep2015 10/21/2015 2.52 2.22 13.51
Jun2015 07/22/2015 1.62 1.4 15.71
Mar2015 04/22/2015 1.97 1.81 8.84

Source: NASDAQ

Boeing Short-term Outlook Is Not Good

Boeing recently reported that it had delivered 176 airplanes during the first quarter, in-line with its own estimates but 4.3% lower compared to Q1 2015 when the company delivered 184 planes. Boeing said that the lower deliveries were as a result of lower demand for long-range 767 and double-decker 747s. Boeing said that it shipped just one 747 and one 767 jet during the quarter, down from four 747s and five 767s in the year-ago comparable quarter.

Meanwhile, 787 Dreamliner deliveries remained flat Y/Y at 30 with 737 deliveries also staying flat at 121.

There is a possibility that low oil prices are responsible for the lower demand for Boeing's long-range planes and the fuel-efficient 787 Dreamliner. Maybe customers who had placed orders for these planes later cancelled due to the persistence of low oil prices. But this is more of a short-term headwind for Boeing than a long-term one. With Boeing's order books sold out and the company lying on a 7-year order backlog, it can take more than five years to get a new plane from Boeing. Additionally, older fleets need replacing whether oil prices remain low or not. In any case oil prices have been rallying strongly over the past couple of months, and recently crossed the $40/barrel mark for the first time this year. The oil rally could gather more momentum if OPEC members are able to reach an agreement to control supply.

Global air passenger numbers, one of the biggest determinants of aircraft demand, have continued to grow. Last year's growth reading of 6.7% was the highest over the past five years. With this trend, long-term aircraft demand is almost guaranteed.

Global Air Passenger Growth


Source: Statista

Boeing's Weakening Cash Flows

But perhaps investors should be more concerned about Boeing's weakening cash flow. The consensus is for Boeing to report operating cash flow in the negative territory for the first quarter, compared to $88M during Q1 2015 and $1,112M for Q1 2014.

Weakening cash flows and declining earnings are likely to keep Boeing stock depressed over the next couple of months despite the fact that the company has been retiring shares at an impressive rate. During the fourth quarter, Boeing hiked its share buyback program to $14B and hiked its dividend by 20%. The huge buyback will be enough to lower Boeing's outstanding shares by a huge 16.6% at current prices.

Boeing's long-term free cash flow trends, however, are good. Sterne Agee estimates that Boeing' FCF will clock in at $7.4B in 2016 (21% decline compared to 2015) but will rise to $8.5B in 2017, and $9.7B in 2018.

Investor Takeaway

Lower demand for Boeing long-range and fuel-efficient planes coupled with weaker cash flows is likely to keep BA stock depressed after Q1 2016 earnings. The long-term trends for the company are, however, good. Investors should wait until after the upcoming earnings call to gain fresh entry points.

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  • I do not have any business relationship with the companies mentioned in this post.
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