Boeing (BA) is scheduled to report results of the third quarter of its fiscal year 2021 before market open on October 27, with a conference call scheduled for 10:30 pm ET. What to watch for:
1. 'CHALLENGING' Q3 RESULTS: Ahead of quarterly results, Bernstein analyst Douglas Harned lowered the firm's price target on Boeing to $269 from $279, while keeping an Outperform rating on the shares. Despite the potential for recovery in six months, third quarter results appear "challenging" for Boeing and Airbus (EADSY), with issues by far the greatest at Boeing. The analyst noted that 787 deliveries remain shut down and 737 MAX deliveries in the third quarter are in line with his model, with the ramp up still appearing slightly slower than his projections.
Meanwhile, RBC Capital analyst Ken Herbert initiated coverage of Boeing with an Outperform rating and $275 price target. In a research note on Thursday, the analyst said he sees the shares being at an "attractive entry point from a cyclical perspective." An expected 2022-2023 inventory draw-down will provide positive free cash flow momentum, said Herbert, who sees normalized free cash flow at about $15 per share.
2. 737 MAX PRODUCTION: During the company's last earnings call, Boeing said it was continuing to make progress on the global safe return to service of the 737 MAX. At the time, the 737 program was producing at a rate of approximately 16 per month, with the company saying it continued to expect a gradual increase in production to 31 per month in early 2022 with further gradual increases to correspond with market demand.
3. FLAWS IN SOME 787 DREAMLINERS: Boeing and U.S. regulators said certain titanium 787 Dreamliner fasteners were made improperly over the past three years, Reuters' David Shepardson and Sanjana Shivdas reported earlier this month. The news is the latest in a litany of issues to plague the wide-body aircraft, the authors noted.
The publication also noted that the Italian sub-contractor at the center of the latest snags to emerge on Boeing's 787 Dreamliner had worked for a broad set of aerospace companies including Spirit AeroSystems (SPR). Boeing and regulators said some 787 jetliner parts were improperly made over the past three years and were supplied indirectly by Manufacturing Process Specification, as a sub-contractor to Leonardo (FINMY), Reuters' Tim Hepher and David Shepardson, Francesca Landini reported.
Back in July, Boeing said it had identified additional rework that will be required on undelivered 787s. Based on its assessment of the time required to complete this work, the company decided to reprioritize production resources for a few weeks to support the inspection and rework. As that work was performed, the 787 production rate was expected to remain lower than five per month. Boeing added that it also expected to deliver fewer than half of the 787s currently in inventory this year.
4. Q3 DELIVERIES: During the third quarter, Boeing delivered 66 737s, two 747s and eleven 767s. "We are also continuing to complete comprehensive inspections across the 787 production system and within the supply chain, while holding detailed, transparent discussions with the FAA, suppliers and our customers. Production resources remain focused on inspections and rework and the 787 production rate remains lower than five airplanes per month. We will continue to take the time needed to ensure the highest levels of quality. While these efforts continue to impact deliveries, we're confident this is the right approach to drive stability and first-time quality across our operations and to position the program for the long term as market demand recovers," the company said.