Chicago, Illinois – Aerospace and defense stocks have shown solid performance over the past year, with the iShares U.S. Aerospace & Defense ETF (ITA) rising by 18%. However, there has been notable underperformance in the first half of this year for the sector. This is due to various macro challenges, such as a strong dollar, as well as specific bearish catalysts affecting some of the fund’s major holdings.
One of the key companies in the aerospace industry is Boeing, known as the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft. Boeing operates through different segments, including Commercial Airplanes, Boeing Defense, Space & Security (BDS), Boeing Global Services, and Boeing Capital Corporation, providing financial solutions for the sale and delivery of commercial and military aircraft, satellites, and launch vehicles.
In April, Boeing reported a mixed set of quarterly results, with Q1 non-GAAP EPS beating analyst expectations but revenue missing estimates. The company’s backlog grew to $529 billion, but operating cash flow was negative due to challenges in commercial deliveries. The stock saw a decline in value following the earnings report, compounded by issues with its 787 production and a credit rating downgrade from Moody’s.
Looking ahead, there are risks associated with product development challenges, particularly regarding safety concerns like the 737MAX. Additionally, macroeconomic factors such as higher energy prices and currency fluctuations could impact Boeing’s revenue. Analysts anticipate an improvement in operating EPS in the coming years, with revenue growth expected to rise significantly by 2026.
Boeing’s valuation presents some challenges, with negative historical earnings complicating the picture. However, if the company can boost free cash flow in the future, it could see a better multiple. Even though price-to-sales ratios look favorable, uncertainty remains regarding EPS projections.
Compared to its peers, Boeing’s valuation and growth trajectory are middling, while positive profitability trends suggest that pessimism may be overblown. However, the stock has been a laggard in recent years, with weak share-price momentum and negative sentiment from analysts.
In conclusion, Boeing faces challenges in the aerospace industry, with uncertainties surrounding free cash flow, earnings, and valuation. The technical chart shows a bearish trend, indicating weak absolute momentum compared to industry and market benchmarks. Investors should closely monitor upcoming corporate events and production figures to gauge Boeing’s future performance in the market.
