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Boeing Continues to Win Big Orders: Time to Buy the Stock?

By Shane NeagleStock MarketsMar 15, 2023 02:11PM ET
www.investing.com/analysis/boeing-continues-to-win-big-orders-time-to-buy-the-stock-200636292
Boeing Continues to Win Big Orders: Time to Buy the Stock?
By Shane Neagle   |  Mar 15, 2023 02:11PM ET
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Boeing (NYSE:BA) confirmed it has agreed to sell 78 of its 787 Dreamliner jets to two Saudi carriers, marking the latest major order for the wide-bodied aircraft in recent months. The deal suggests a notable increase in demand for wide-body airplanes, which are used for long-distance flights.

The transaction comes a few months after Boeing sold 100 787 Dreamline jets to United Airlines, marking the largest wide-body sales to a U.S.-based carrier. The deal included an option to buy 100 more jets to replace the company’s decade-old jets.

Big Orders Bring Better Visibility

The planemaker said the jets were acquired by Saudi Arabian Airlines and Riyadh Air, a new national airline unveiled by Crown Prince Mohammed bin Salman during the weekend. The airline is owned by Saudi Arabia’s sovereign wealth fund (PIF) and will be spearheaded by former Etihad Airways CEO Tony Douglas.

Saudi Arabian Airlines ordered 39 jets, with an option to buy an additional 10, while Riyadh Air will acquire 39 of the two largest Boeing plane models, including an option to add another 33.

According to the White House, the deal is worth around $37 billion, though that figure does not take into consideration price discounts that carriers receive for large-scale orders. Boeing did not provide details regarding the timeline for deliveries.

“This will support the country’s goal of serving 330 million passengers and attracting 100 million visits by 2030,” Riyadh Air said in a news release.

Similarly, the United order provided a crucial boost for Boeing following a devastating travel slump during the coronavirus pandemic. Meanwhile, United Airlines returned to profitability as a recent recovery in demand helped carriers add new international flights.

United said it will use around 100 of the Dreamliner jets included in the order to replace Boeing 767s and some of its Boeing 777s. The airplanes were expected to be delivered between 2024 and 2032.

Air India also ordered 470 Boeing and Airbus aircraft amid a travel demand resurgence. The national carrier of India ordered 220 Boeing aircraft for $34 billion, including 190 737 Max aircraft, 20 of Boeing’s 787s, and 10 777X jets. The deal also included an option to add a further 50 737 Maxs and 20 787 planes, totaling 290 aircraft for $45.9 billion.

The deal marked the third-largest sale for Boeing in terms of dollar value, and second biggest in terms of quantity.

February Deliveries Solid

Despite a robust start to 2023, Boeing has seen a notable slowdown in orders and deliveries in February. The jet manufacturer delivered just 28 aircraft last month, 24 of which were 737 MAXs, bought by United Airlines, Ryanair, fyldubai, and Alaska Airlines.

In terms of widebody jets, the company delivered just one 787-10 to United Airlines in February. In addition, it delivered two cargo aircraft to Air China (OTC:AIRYY) Cargo and Atlas Air (NASDAQ:AAWW), 777F and 747-8F, respectively. The Atlas (NYSE:ATCO) delivery marked a historic moment for Boeing, as it represented the final delivery of its legendary Boeing 747 following 55 years of production.

Boeing’s total deliveries in February were significantly down compared to 38 in January due to a number of factors including persisting supply chain constraints. But more importantly, the U.S. plane maker was forced to stop deliveries of 787s last month due to an investigation into the aircraft’s fuselage parts.

A few days ago, the Federal Aviation Authority (FAA) lifted the ban on deliveries of 787s, which are expected to continue in the coming days. Earlier this year, Boeing welcomed the long-awaited return of the 737 MAX in China after almost four years.

The Chinese government banned the flagship Boeing jet in 2019 following two fatal crashes in Indonesia and Ethiopia. Shortly afterward, the 737 MAX was grounded in numerous countries around the world, before largely returning to service in late 2020.

Still, Chinese authorities did not lift the ban on the 737 MAX, until January 13, when the aircraft flew from Guangzhou to Zhengzhou, representing the first commercial flight to use that particular aircraft in China since 2019.

The flight was operated by China Southern Airlines, which uses 24 Boeing 737 MAX 8 planes, though only three are in service at the moment. The Guangzhou-based carrier originally planned to bring back the Boeing 737 MAX 8 to service in October 2022, but the company didn’t use it until January.

Strong Stock Performance Lately

The aforementioned positive catalysts helped Boeing shares climb over 80% from October 2022 to February 2023. For Morgan Stanley (NYSE:MS) analysts, the surge in Boeing share price was a catalyst to downgrade the stock as it was nearing “fair value”.

"We see a balanced risk reward as the majority of the near- and medium-term positive catalysts for the stock have been realized. Going forward, we expect Boeing to trade on execution of its 2025/2026 aircraft production rate targets and free cash flow generation,” analysts wrote in a note.

“Despite the strong demand for aircraft, we see the supply chain as a bottleneck for further production/delivery increases, which is the key milestone for cash generation.”

The analysts believe that “catalyst-rich periods” are over, thus they predict a limited upside from current levels. Morgan Stanley’s new price target of $220 per share implies an upside potential of less than 7% relative to Tuesday’s closing price.

Summary

Boeing shares soared in recent months as the embattled U.S. defense giant is finally experiencing some degree of visibility after a troubled couple of years. Recent massive orders from Saudi Arabia, India, and U.S.’ United Airlines are helping the stock to trade higher as investors continue to seek exposure to the recovery in international travel demand.

. . .

Shane Neagle is the EIC of The Tokenist. Check out The Tokenist’s free newsletter, Five Minute Finance, for weekly analysis of the biggest trends in finance and technology.

Boeing Continues to Win Big Orders: Time to Buy the Stock?
 

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Boeing Continues to Win Big Orders: Time to Buy the Stock?

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