Shareholders of Boeing (NYSE: BA), the world’s largest aerospace company, are certainly disappointed with how shares have performed over the past year. The share price has only grown 4% over the past 12 months.
This year, the stock is expected to do much better as the Chinese air transport sector, second in the world in terms of passenger traffic, will provide a strong upward momentum.
There is a good chance that Boeing will outperform most stocks, which will suffer from the Federal Reserve’s determination to raise interest rates this year. A central bank’s tighter policy means monetary easing will stop and could lead to massive sell-offs in the stock market.
This may be the case in particular for higher risk stocks such as speculative investments and cryptocurrencies that have helped the market achieve impressive returns in the recent past.
Thus, I am bullish on this stock.
Based in Chicago, Illinois, The Boeing Company is a supplier of commercial jet aircraft for passenger and cargo needs to several airline companies around the world, including United Airlines, American Airlines, and Southwest Airlines.
The company also researches and develops military aircraft and various systems for strategic defense, intelligence and space exploration. The company also produces this equipment.
The Boeing Capital segment provides equipment portfolio management services from a financial perspective.
Q3 2021 Earnings
Q3 2021 earnings improved from the equivalent period in 2020. The net loss was $0.60 on an adjusted basis and $0.19 on a GAAP basis, missing the average consensus estimates by $0.46 and by $0.71, respectively.
Net loss decreased to $132 million in the third quarter of 2021 from $466 million in the third quarter of 2020.
Revenue came in at $15.28 billion, up 8.4% year-over-year, but missed the average projection by nearly $1 billion. Commercial aircraft accounted for 29% of total revenues, defense, aerospace and security revenues contributed 43%, while service revenues contributed 28%.
Boeing delivered 85 jets in the quarter, up from 79 total deliveries in the second quarter of 2021.
The company also said it had a $290-billion backlog of commercial aircraft at the end of the three-month period, and added 93 net orders to the total.
Operating activities generated another free cash outflow of $507 million, significantly less than last year’s quarter when free cash outflow was $5.08 billion.
Chinese Market
Through various measures, such as tax relief and the issuance of loans under favorable conditions, the Chinese government has given strong stimuli to the aviation sector in recent months.
According to recent data from the regulator, China’s aviation sector continues to recover from the impact of the COVID-19 pandemic.
Available data for the first half of 2021 indicate that total passenger journeys on domestic and international routes grew 66.4% year-over-year, although still 25% below pre-pandemic levels. However, passenger traffic on domestic flights is already at a pre-epidemic level.
The Chinese regulator has re-approved the airworthiness of the Boeing’s 737 Max in Chinese airspace after the two fatal accidents in March 2019.
As for flights for the transportation of goods, there is an increase in routes that establish new commercial connections between several Chinese cities and Europe and the countries of South Asia, including India.
The aircraft fleet will expand to serve more passengers and cover more commercial routes. More goods will need to be loaded on board to reach a growing number of commercial destinations. So, the cargo aircraft loading will be adapted to key Chinese industries’ new logistics and transportation needs.
China’s demand for expanded cargo is growing rapidly, so to ensure the 737-800 Boeing Converted Freighter (Bcf) aircraft has a top payload, Boeing has partnered with Taikoo (Shandong) Aircraft Engineering Co.
Customers sent over 200 purchase orders and commitments to the Staeco factory in Jinan, eastern China’s Shandong province.
The Chinese market offers incredible growth opportunities that the largest aerospace company in the world will certainly not miss.
Wall Street’s Take
In the past three months, 16 Wall Street analysts have issued a 12-month price target for BA. The company has a Strong Buy consensus rating, based on 13 Buys, three Holds and zero Sell ratings.
The average Boeing price target is $269.07, implying 29% upside potential.
Conclusion
The strong recovery of China’s commercial aviation should help Boeing get out of the quicksand.
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