Shares of The Boeing Company BA have lost 12.3% in the past three months, underperforming the Zacks aerospace-defense industry and the broader Zacks Aerospace sector’s decline of 10.3% and 6.4%, respectively. The company also lagged the S&P 500’s rise of 6.3% in the said time frame.
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The stock’s three-month price return also lagged that of three key commercial jet makers, namely Embraer ERJ, Airbus Group EADSY and Textron TXT. Shares of Embraer surged 14.9%, while those of Airbus and Textron lost 4% and 6.7%, respectively, over the past three months.
What Caused BA Stock’s Recent Downfall?
America’s largest jet maker has been struggling for quite some time at the bourses with persistent challenges like the quality control issue of its 787-jet model resulting in the required rework as well as the slowdown in its 737-production rate owing to inspections following the Alaska Airlines incident at the beginning of this year.
The latest seven-week-long labor strike at the company that ended on Nov. 4, 2024, and caused production pause for some of its key jet programs, both commercial and defense, was another major blow to Boeing’s operational performance. Consequently, the company’s third-quarter revenues and earnings suffered, which might have been a key reason behind investors losing their confidence in this stock. This was duly reflected in Boeing’s latest share price performance.
Will BA Stock Recover Anytime Soon?
Steadily increasing air travel activities over the past year have been boosting demand for aircraft aftermarket services, a trend we may expect to continue in the coming quarters and bode well for Boeing. Therefore, growth prospects for BA’s services business remain solid, with this unit ending the third quarter of 2024 with a solid backlog of $20.45 billion.
The growth prospects for the company’s defense business unit also remain solid, with surging geopolitical tensions and cross-border hostilities fueling the demand for lethal weapons and Boeing’s portfolio comprising products ranging from combat jets and missiles to small-diameter bombs.
However, the growth prospect for the company’s commercial aircraft business remains gloomy, at least in the near term. It is plagued with many challenges, including the lingering effect of the labor strike mentioned above. With this business comprising almost 44% of BA’s total revenues, the dismal performance of this unit can be expected to adversely impact the company’s overall operational performance in the coming one or two quarters.
A quick sneak peek at its upcoming estimates reveals a similar picture.
BA’s Estimates: A Mixed Bag
Boeing’s fourth-quarter 2024 revenue estimate indicates a year-over-year decline of 17%, while the same for earnings also implies a deterioration from the year-ago quarter’s reported figure. Its full-year 2024 estimates suggest a similar deterioration trend. The downward revision in its earnings estimate is suggestive of investors’ loss of confidence in this stock lately.
However, its 2025 estimates indicate year-over-year growth. So, we may expect the stock to rebound from its current peril as we progress toward 2025.
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Risks to Consider Before Choosing BA Stock
In addition to the internal company-specific challenges, persistent supply-chain challenges plaguing the commercial aerospace industry remain a major headwind for this jet manufacturer. This supply-chain challenge is causing aircraft makers and aerospace parts suppliers to struggle to keep up with the soaring demand, thereby limiting the potential for timely delivery of finished aircraft. Although the extent of the supply-chain issue has been mitigated to a certain extent, a total recovery from the same is not anticipated in the coming months. So, we may expect Boeing to continue to face supply-chain challenges in the near term, which might cause it to miss its delivery schedules. This, in turn, may hurt its revenue generation prospects.
Other industry challenges, like a shortage of skilled labor and steadily rising fuel prices, continue to pose a threat to Boeing, especially its commercial airplane division. One should consider this before investing in the stock.
BA Stock’s Dismal ROIC
The stock’s trailing 12-month return on invested capital (ROIC) not only lags the industry’s return but also reflects a negative figure. This indicates that the company's investments are not generating sufficient returns to cover its costs.
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Should You Buy BA Stock Now?
To conclude, one should wait for a better entry point before investing in BA stock, considering its poor ROIC, dismal share performance, dim near-term outlook and persistent industry challenges.
BA currently has a VGM Score of F, which is also not a favorable indicator of strong performance. The company’s Zacks Rank #5 (Strong Sell) further supports our thesis.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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