Boeing Posts Profit in Second Quarter; FVE $260

Wide-moat-rated Boeing BA posted a surprise quarterly profit of $0.09 per share (its first quarterly profit since the third quarter of 2019) on July 28 as the firm narrowed operating losses in commercial airplanes, met its operational targets in defense, and benefitted from greater flight activity in services. We maintain our long-term thesis on the company. We think the most pertinent issue for investors is by far the 737 MAX recertification in China, but we are also concerned about the pause in 787 deliveries and are cautiously optimistic about the firm’s defense portfolio going forward.

We are raising our fair value estimate for the company to $260 per share from $257 as we raise our near-term targets for the defense business this year and we decrease our near-term working capital estimates.

Boeing commercial delivered 50 737 aircraft this quarter, down from 63 in the previous quarter, as Boeing continues to decrease its 737 MAX inventory from the extended grounding of the aircraft. The firm scored major orders from U.S. carriers such as Southwest and United during the quarter, as developed-world airlines are now in a strong enough financial position to plan their post-pandemic fleet updates. We’re anticipating that as COVID-19 vaccines become more broadly available around the world, we will begin to see more international orders. Management commented that over 1,500 aircraft have been retired from the active fleet, which we estimate represents around 6% of the current active fleet, and a strong sales pipeline for the 737 MAX. Boeing has done a good job on the sales front, it has won 516 of the 652 announced narrowbody orders this year, but industry reports suggest that Boeing may be cutting pricing to win sales and rebuild their somewhat bruised backlog for the aircraft. Boeing commercial posted sales of $6.0 billion, up 40% from the prior quarter, and a $472 million loss, versus an $856 million loss in the prior quarter.

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