What Does the Stockpile of 737s Mean for Boeing Investors?



Boeing deliveries

As we discussed in Part 1 of this series, unfinished planes have prevented Boeing from delivering finished aircraft to its customers. Accordingly, Boeing expects lower deliveries in the third quarter. However, the company believes that it can accomplish its annual delivery target.

According to Boeing’s latest guidance, it expects to deliver 810–815 commercial aircraft in 2018. In the first half of 2018, BA has delivered only 378 planes, less than half of its full-year guidance.

Achieving this target is expected to be an uphill task for Boeing, as the company has a narrow margin of error. Interruptions in the supply chain could also present an obstacle to Boeing achieving its revenue guidance. 

For 2018, Boeing expects to post $97.0 billion–$99.0 billion in revenues. Its Commercial Airplane segment is expected to achieve revenues of $59.5 billion–$60.5 billion. Boeing’s delayed deliveries are expected to impact airlines such as United Continental (UAL), Shanghai Airlines, and Eva Air.

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Impacting production plans

Boeing expects to increase the production rate of its 737 aircraft. In 2018, its production rate is expected to increase from 48 to 52 aircraft and in 2019 to 57 aircraft. 

Boeing also plans to increase its Dreamliner production rate to 14 per month in 2019. Supplier problems are expected to impact these plans, which could affect revenue growth.

Improving margins

According to analysts, Boeing has also guided for reduced “traveled work” after October, which should improve its margins. Traveled work means completing delayed work that was supposed to be done elsewhere. Boeing has guided for its Commercial Airplane segment’s operating margin to be greater than 11.5% in 2018.

Investors can gain exposure to Boeing stock by investing in the Industrial Select Sector SPDR ETF (XLI), which holds 7.9% of its portfolio in Boeing. XLI holds 5.3% in 3M (MMM), 5.1% in Honeywell International (HON), and 4.2% in United Technologies (UTX), all of which are Boeing’s suppliers.

Next, we’ll see how analysts have changed Boeing’s ratings after its 2018 investor day.


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