Boeing Q4 preview: Where next for Boeing stock?

When will Boeing release Q4 earnings?

Boeing will release fourth quarter earnings on Wednesday January 26.

Boeing Q4 earnings preview

We already know that Boeing delivered 99 commercial airplanes during the fourth quarter, below the 103 expected by analysts. Still, that is the largest number of deliveries since the first quarter of 2019, when the pandemic erupted and started to cause chaos for the travel industry.

That means Boeing delivered 340 during 2021, up from just 157 aircraft in 2020 but still below the 380 shipped in 2019.

Airlines deferred or even cancelled orders as international travel grounded to a halt, but demand is starting to steadily recover. The outlook for travel remains highly uncertain, but is brighter than it was a few months ago now that governments are trying to live with virus and refraining from reintroducing strict lockdown measures. Analysts believe deliveries will continue to grow this year and forecast Boeing will ship 121 commercial aircraft in the first quarter of 2022 and expect it to deliver 613 of them over 2022 as a whole, according to consensus numbers from Bloomberg.

‘Commercial market demand continues to gain traction with broad-based vaccine distribution and border protocols beginning to open. Going forward, supply chain capacity and global trade will be key drivers of our industry and the broader economy's recovery,’ Boeing CEO David Calhoun said after the last set of quarterly earnings back in October. Boeing has a backlog of orders for 4,100 airplanes, which together are worth some $290 billion.

The 737 MAX will remain under the spotlight as Boeing continues to recover after having to ground the model in 2019 following two fatal crashes. Most countries have given Boeing the green light to resume flying since the US gave it the go-ahead back in November 2020. China was the last major market to reapprove the aircraft last month. Since deliveries have resumed, it has shipped over 185 of the aircraft and returned 200 grounded planes back into service. Boeing said it was producing 19 of 737 MAX per month in its last update but said this should increase to 31 in ‘early 2022’, with a view of increasing output further.

Broker Bernstein said this week that Boeing was its top choice in the aerospace and defence industry for 2022 on the belief demand will surge as international travel recovers and the world learns to live with Covid-19. Notably, it said it is expecting 737 MAX deliveries start to ramp-up from February onwards, driven by the recertification secured in China.

Meanwhile, news on the 787 MAX will also be closely-watched after a number of major safety concerns came to light in September 2020, including one about manufacturing and quality control over the horizontal stabiliser, providing another problem for Boeing. Deliveries remain halted and it is still working on rectifying the issues, but it is still producing two per month and plans to return to five per month ‘over time’. The fiasco is set to cost Boeing $1 billion in total. It is still unclear when US regulators will allow the 787 MAX back into service, but this is a potential catalyst for the stock going forward.

Wall Street is expecting Boeing to report a rise in revenue in the fourth quarter to $16.99 billion from $15.30 billion the year before, and for core EPS to breakeven compared to the hefty $4.18 loss booked last year.

Topline growth is set to be driven by the uptick in commercial aircraft deliveries and the continued recovery for its support services as travel demand continues to rebound. However, the miss on deliveries puts it at risk of missing expectations. Revenue from its defence, security and space operations, including sales of its Apache and Chinook helicopters and its satellites, is expected to remain broadly flat year-on-year.

5G and airlines: what’s the story?

There was news this week that the CEOs of major US airlines are becoming increasingly worried about the impact that 5G will have on aviation. Reuters reported that CEOs from companies including American Airlines, Delta Air Lines, United Airlines, Southwest Airlines, FedEx and UPS have written a letter to the industry regulator warning there could be a ‘catastrophic’ crisis for the aviation industry as AT&T and Verizon prepare to start ramping-up their deployment of 5G services.

‘Unless our major hubs are cleared to fly, the vast majority of the traveling and shipping public will essentially be grounded. This means that on a day like yesterday, more than 1,100 flights and 100,000 passengers would be subjected to cancellations, diversions or delays,’ the letter said. ‘To be blunt, the nation’s commerce will grind to a halt’.

AT&T and Verizon, the two big players rolling-out 5G across the country, are starting to deploy a new band of 5G but there are concerns this will cause havoc near runways as equipment could interfere with sensitive components on aircraft such as altimeters, causing issues during landing. The Federal Aviation Administration last week began giving approval for aircraft to perform low-visibility landings where the new band of 5G is due to be deployed, but said it had signed-off less than half of the US commercial fleet so far. In total, around 88 airports are set to be impacted by the rollout.

The House Transportation Committee then asked AT&T and Verizon to scale-back the rollout of 5G services near key US airports to provide more time for the situation to be reviewed, which they have agreed to. Still, a number of international airlines have had to cancel flights or had to switch aircraft for flights heading to the US this week. Domestic airlines have also warned they could see some disruption. The peace has been kept for now, but we could see a standoff between two gigantic industries emerge if a resolution isn’t found.

Where next for BA stock?

Boeing shares have been trending higher over the last four weeks after rebounding from the 13-month low of $185 hit last month, and recently tested the 200-day sma to currently trade at $224. We saw the stock take a hit yesterday when it sank 3.5%, but this has quickly closed the gap created when it jumped higher last week, and the stock’s closing share price remained above the line of support that has emerged in recent weeks.

The RSI remains marginally within bullish territory, supporting the view the current uptrend will persist, which should see shares climb toward the level of resistance seen in mid-November of $233. If it can breach past that level then it can start to eye $241, a key ceiling for the stock throughout July and August.

If the stock slips out of the current uptrend, then we could see shares fall first to the 100-day sma at $213 and then onto the 50-day sma at $209. Beyond there, $204 comes into view.

Brokers are bullish on Boeing as it recovers from both the pandemic and its own internal issues. The 28 brokers covering the stock have a Buy rating on the stock and an average target price of $260, a level not seen since last March but one that implies there is over 14% potential upside from the current share price.

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What about Airbus?

Airbus, the only major rival to Boeing, is scheduled to release full year earnings next month on February 17.

Airbus shares remain over 17% below the all-time highs hit in January 2020, just before the pandemic hit and caused chaos for the travel industry, while Boeing still trails by over one-third. Boeing’s internal problems with its aircraft means that Airbus has recovered at a swifter rate.

In fact, Airbus has capitalised on the situation and gained market share over its rival. Annual delivery numbers for 2021 show Airbus delivered 611 aircraft in 2021, capturing around 78% of the market compared to Boeing’s 22%. A year ago, Airbus held 64% while Boeing held 36% market share. There is also evidence that some airlines have switched over to Airbus to avoid being caught up in Boeing’s problems. Boeing secured the lion’s share of gross orders made in 2020 but that changed last year with Airbus securing 68% of orders.

Where next for Airbus stock?

Airbus shares have hit post-pandemic highs of $121 on two occasions in the last six months, and this remains the key upside target for the stock going forward. However, the stock has lost ground since last touching that key level of resistance and has now closed lower in nine of the last ten trading sessions, where we have seen sellers narrowly beat buyers in tight trading since the start of the new year. The RSI remains marginally bullish, but is also trending lower and on the verge of entering bearish territory.

If the current trend continues, we could see Airbus shares fall toward the 100-day sma at $111 or even the 50-day and 200-day sma closer to $110. The fact the 50-day sma remains below the 100-day sma is another bearish signal supporting that view, and that would be reinforced if the 50-day crosses over the 200-day, which it has been on the cusp of doing for the last month. A break below there would open the door initially to the $107 mark that proved to be a level of support on several occasions in the last five months and then to the $99 resistance level that emerged in December.

Goldman Sachs raised its price target on Airbus shares to EUR176 from EUR159 yesterday. The average target price set by the 24 brokers covering the stock is EUR141.30, implying there is over 23% potential upside from the current share price, accompanied with a Buy rating.