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Boeing Stock: Embattled Dow Giant Looks Past Q2 Loss To 'Next Milestone'

Boeing posted a wider loss than feared for the second quarter early Wednesday with revenue also falling short, driven by weakness in its defense business. But the company burned less cash than expected and said it remains on track for positive free cash flow in 2022, as it ramps up commercial jet deliveries. Boeing stock opened higher but fell slightly in afternoon trade.

The Dow Jones aviation giant is working with safety regulators "on final actions" to resume 787 Dreamliner deliveries. Boeing also has raised 737 Max production to 31 per month, according to its Q2 earnings release Wednesday.

It's an important moment for Boeing, whose widebody 787s were halted for more than a year due to manufacturing flaws. And after two fatal accidents, the narrow-body 737s were grounded globally for longer.

On Wednesday, CFRA analyst Colin Scarola wrote that he sees Boeing's free cash flow (FCF) normalizing by 2026 on record U.S. airline demand, with the rest of the world to follow. He tied Boeing's defense weakness to an industrywide downturn and still expects that market to grow in 2023 on higher defense spending after Russia's Ukraine invasion.

"BA hit a key milestone with operating cash flow turning positive," Scarola added. "We expect a major lift for the shares when the next milestone of positive FCF is hit, which we think is in the second half." The CFRA analyst rates Boeing stock a strong buy rating with a $252 price target.

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Boeing Earnings: A Mixed Bag

Boeing swung to a 37-cent loss per share from EPS of 40 cents a year ago. Q2 revenue dipped 2% to $16.681 billion, with the plane maker lapping tough comps. Analysts were expecting Boeing to lose 15 cents a share with revenue growing 3% to $17.574 billion, according to FactSet.

Total backlog reached $372 billion, including over 4,200 commercial jets. Boeing generated $81 million in operating cash flow, improving sharply from the prior quarter on higher commercial deliveries.

In Q2, Boeing delivered 121 commercial airplanes, up from 95 units in Q1 and 79 a year earlier. Commercial revenue rose 3%, driven by higher 737 deliveries, partially offset by lower 787 deliveries. The Q2 deliveries included 103 units of the 737s, up from 86 the previous quarter.

Defense and space revenue tumbled 10% year over year. That was "primarily driven by charges on fixed-price development programs, including MQ-25 and Commercial Crew," according to Wednesday's earnings release.

In Q2, the company burned through $182 million in cash, down sharply from a cash burn of $3.565 billion the prior quarter. Analysts expected negative free cash flow of $822 million, FactSet shows.

Boeing Backs FCF Outlook

For the full year, Boeing still expects to report positive free cash flow, it said Wednesday. Wall Street expects Boeing to turn FCF positive in the current quarter, generating $549.9 million in all of 2022. Boeing burned through roughly $4.4 billion in 2021, FactSet shows.

Boeing's FCF is an important metric for management and investors. After a three-year earnings slump, FCF is used to assess momentum in Boeing's turnaround and its ability to pay down debt.

"While we are making meaningful progress, we have more work ahead," Boeing CEO Dave Calhoun said in a statement Wednesday.

Analysts expect Boeing to lose $1.08 a share for the full year, sharply narrowing a $9.44 loss per share in 2021. Given that Boeing has already lost $3.12 a share so far in 2022, Wall Street is betting on a profitable second half.

Over the past couple years, the defense and aerospace company suffered lengthy production and sales hits to its 787 and 737 commercial jets over safety and supply issues, irking airline customers in the process.

Boeing Stock Manages A Gain

Shares closed up 0.1% to 156.11 on the stock market today, after rising as high as 162.74 in morning trade. Boeing stock rallied for four out of six weeks heading into Q2 earnings, regaining the 10-week line and coming off June lows.

BA stock remains well below the 40-week line but its relative strength line is improving after a tumble. A rising RS line means a stock is outperforming vs. the S&P 500.

Airbus stock fell 1.3% to 25.98, reversing sharply lower from a morning jump to 28.75. Airbus reported a sharp drop in earnings early Thursday, and cut its full-year delivery target.

Boeing Outpaced Airbus At Farnborough

The Boeing earnings report comes just over a week after the Dow Jones aviation giant saw orders pour in at the Farnborough International Airshow.

That included a Delta Air Lines order for 100 Max 737-10 planes, its first big Boeing purchase in more than a decade, as commercial air travel stabilizes after the pandemic. Boeing reportedly outpaced Airbus with 172 firm orders at the airshow, with several new orders for its troubled 787 and 737 jets from airline and aircraft-leasing customers, including Delta and AerCap.

On Tuesday, Boeing jet-engine suppliers General Electric and Raytheon both signaled a robust recovery in global commercial air travel and growth in new plane orders.

Supply Disruptions, Inflation

But headwinds remain for Boeing and other multinational companies.

At Farnborough, global supply chains and inflation dominated conversations. And Boeing CEO Dave Calhoun said during the event that he sees supply constraints, tied largely to jet engines, persisting over the next 18 months.

After the Ukraine invasion, Boeing was also expected to lose dozens of jet orders due to the resulting sanctions on Russia.

On the military side, Boeing lost a multibillion-dollar contract for a next-gen missile defense program to Lockheed Martin and Northrop Grumman in March.

Year to date, Boeing stock lags several peers on the Dow Jones Industrial Average, down 22.6% through July 26.

Amid headwinds in commercial aviation, BA stock mostly sat out the post-Ukraine invasion rally for defense stocks.

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