Chicago-based Boeing Co. (BA) operates through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital. Over the past six months, BA shares have slumped 19.6% in price to close yesterday’s trading session at $197.85. The stock is currently trading well below its 50-day and 200-day moving averages.

Global supply chain disruptions are straining the plane maker and its suppliers as demand picks up. These disruptions are driving up costs and hampering the aerospace industry’s recovery from the COVID-19 pandemic. In addition, BA has been facing delays correcting technical problems. BA has slowed production of its 787 Dreamliner as it addresses defects that are delaying its delivery of new jets..

BA shares had slumped more than 4% price on Nov. 19 in response to its 787 news. Also, investor confidence in BA appears thin following the two 737 MAX debacles in 2019 and 2020 and the company’s lingering engineering and quality issues. Moreover, because the World Health Organization warned that the new COVID-19 omicron strain is a ‘variant of concern,’ countries are considering imposing new restrictions and banning international travel, threatening global air traffic.

Here is what could shape BA’s performance in the near term:

Top Line Growth Does Not Translate into Bottom-Line Improvement

BA’s total revenues increased 8.1% year-over-year to $15.28 billion in its fiscal third quarter, ended September 30. However, its total costs and expenses stood at $13.57 billion, up 3.5% from the same period last year. Its net loss attributable to Boeing Shareholders declined 75.7% from its year-ago value to $109 million. The company’s adjusted loss per share came in at $0.60, versus the $0.21 consensus estimate, reflecting an earnings surprise of negative 185.7%. In addition, its cash and cash equivalents balance declined 7.6% year-over-year to $9.76 billion in the nine months ended September 30.

Stretched Valuation

In terms of forward P/E, BA is currently trading at 3,722.81x, which is 16,515.1% higher than the 22.41x industry average. Also, its 37.57 forward EV/EBITDA ratio is 201.6% higher than the 12.46 industry average Also, BA’s 77.45x and 1.78x respective forward EV/EBIT and Price/Sales are 345.1% and 9.7% higher than the industry averages.

Poor Profitability

BA’s gross 5.02% profit margin  is 83.1% lower than the 29.70% industry average. Also, its 1.63% Capex/Sales is 35.2% lower than the 2.51% industry average.

Moreover, BA’s ROA and ROTC of negative 5.77% and 4.51%, respectively, compare with the 5.16% and 6.75% industry averages.

POWR Ratings Reflect This Bleak Prospects

BA has an overall D rating, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

The stock has a grade of D for Quality, which is consistent with its lower-than-industry profit margins.

BA also has a D grade for Stability, which is in sync with its 1.52 beta.

Of the 71 stocks in the Air/Defense Services industry, BA is ranked #57.

Beyond what I have stated above, one can also view BA’s grades for Sentiment, Growth, Momentum, and Value here.

View the top-rated stocks in the Air/Defense Services industry here.

Bottom Line

Even though BA’s defense segment is seeing some positive trends, its commercial business is currently grappling with several quality issues and the company is slowing down its production to take corrective measures. Analysts expect its EPS to remain negative at least in the current year. Furthermore, the company looks overvalued at its current price level. In addition, the newly identified COVID-19 variant is threatening the recovery of the aerospace industry. Thus, we think the stock is best avoided now, considering its weak profit margins and high volatility.

How Does Boeing Co. (BA) Stack Up Against its Peers?

While BA has an overall POWR Rating of D, one might want to consider investing in the following Air/Defense Services stocks with an A (Strong Buy) rating: Elbit Systems Ltd. (ESLT) and Northrop Grumman Corporation (NOC).

BA shares rose $3.16 (+1.60%) in premarket trading Wednesday. Year-to-date, BA has declined -7.57%, versus a 23.04% rise in the benchmark S&P 500 index during the same period.

Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics.

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