The 787 problem doesn’t appear to move the needle on long-term cash flows.
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Boeing didn’t deliver any of its popular 787 wide-body jets in December. One analyst blames it on a quality problem the company is working through on its revolutionary composite skinned jet.
Melius Research analyst Carter Copeland commented on the delivery goose egg in a Thursday research report after pointing out his institutional-investing clients asked him what it meant for the stock. “The primary issue is associated with ongoing structural inspections looking to find and fix small gaps in fuselage joins of aircraft within inventory,” wrote Copeland. “The gaps reportedly smaller than the width of a human hair.”
The 787, which was introduced more than a decade ago, was the first large jetliner to feature a carbon composite fuselage, replacing the more traditional aluminum. The lighter skin means more efficiency and fuel savings.
Fixing the 787 issues, which Copeland expects to be accomplished, means added costs for the company. Boeing, when asked about the 787 program, referred Barron’s to comments made by Chief Financial Officer Greg Smith in the company’s news release reviewing fourth-quarter deliveries, which said, in part: “We also continued comprehensive inspections of our 787 airplanes to ensure they meet our highest quality standards prior to delivery.” Boeing declined to comment on costs, noting the company is in its quiet period ahead of earnings due in late January.
Copeland doesn’t believe the 787 fuselage issue is a big deal for the stock. “The 787 issues will certainly exacerbate what is widely anticipated to be an ugly Q4,” the analyst said. “But they don’t stand in the way of the broader demand recovery.” He is positive on the stock, rating shares Buy. He has a $260 price target.
The 787 problem doesn’t appear to move the needle on long-term cash flows. And there was some good news in the December delivery numbers to consider. Boeing delivered 27 737 MAX jets. The 737 MAX was recertified to fly after about 20 months being grounded by global aviation authorities following two deadly crashes inside of five months.
Overall December deliveries, despite the 787 absence were better than expected, according to Baird analyst Peter Arment. What’s more, he noted Boeing has roughly 30 787 aircraft in storage waiting to be delivered and another 40 in preflight testing in Charleston, S.C.
Boeing is going to release fourth-quarter financial results on Jan. 27. Analysts project a big loss on reduced sales. That won’t be a surprise. What investors will want is an update on the MAX and other quality problems, along with cash-flow guidance for 2021.
Boeing stock is down 3.4% so far in 2021. But shares have gained more than 26% over the past three months. The S&P 500 and Dow Jones Industrial Average are both up about 8% over the same span.
Aerospace stocks, such as Boeing, have become very sensitive to vaccine news, and vaccine approvals have boosted the entire sector. Aerospace was decimated last year by Covid-19, the worst event in the history of commercial aerospace. Air traffic in the U.S. Wednesday was still down about 70% year over year.
Vertical Research Partners analyst Rob Stallard explained how bad 2020 was with a quip about 2020 deliveries. “Boeing beats its 1973 delivery tally,” wrote Stallard after Boeing released deliveries.
Boeing stock was down 1.5%, at $206.71, in recent trading. The S&P 500 was down 0.4%.
Write to Al Root at [email protected]
