Prominent defense services provider, The Boeing Company (BA) operates through Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital segments.

While the geopolitical tensions have benefitted the broader defense sector, BA’s Defense, Space & Security segment incurred a decline of 19.8% year-over-year in the fiscal third quarter ended September 30, 2022.

Moreover, the company’s CEO David Calhoun expressed concern at the company’s ability to deliver 737 and 787 planes at full capacity by 2023 during BA’s third-quarter earnings call as the aviation giant struggles to recover from issues plaguing its supply chain and instead relies on its limited inventory to help fill orders.

The risk to BA goes beyond lost revenue in the interim, as it competes not just with its industry peers but with emerging sectors like space and advanced air mobility. Critics say it still has a long way to go to reclaim its former standing in the market.

The stock has declined 4.7% over the past year to close the last trading session at $203.64.

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

Weak Financials

For the fiscal third quarter ended September 30, 2022, BA’s total revenue rose 4.4% year-over-year to $15.96 billion. However, its total cost and expenses widened 23.7% year-over-year to $16.78 billion. The company’s non-GAAP core operating loss came in at $3.08 billion, compared to non-GAAP core operating earnings of $59 million in the prior-year quarter.

BA’s non-GAAP core loss per share came in at $6.18, representing an increase of 930% year-over-year.

Low Profitability

In terms of the trailing-12-month gross profit margin, BA’s 1.54% is 94.69% lower than the 29.06% industry average. Its trailing-12-month EBITDA margin of negative 4.36% is significantly lower than the 13.27% industry average. Likewise, the stock’s trailing-12-month Asset Turnover ratio of 0.43% is 46.34% lower than the industry average of 0.80%.

Furthermore, BA’s trailing-12-month negative ROTC and ROTA of 6.68% and 6.14% compare to their respective industry averages of 6.76% and 5.31%.

Premium Valuation

In terms of forward EV/Sales, BA’s 2.48x is 50.1% higher than the 1.66x industry average. Its 1.83x forward Price/Sales is 45.9% higher than the 1.26x industry average. In addition, the stock’s forward Price/Cash Flow of 52.08x is 296.1% higher than the 13.15x industry average.

POWR Ratings Reflect Bleak Prospects

BA has an overall rating of D, 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.

Our proprietary rating system also evaluates each stock based on eight different categories. BA has a grade of D in Stability, which is in sync with its 24-month beta of 1.13. Its C grade in Growth complements its mixed financial performance in the last reported quarter.

BA is ranked #56 out of 74 stocks in the D-rated Air/Defense Services industry.

In addition to the ratings stated above, we have also given BA grades for Growth, Value, Sentiment, Momentum, and Quality. Get all BA ratings here.

Bottom Line

BA reported disappointing fiscal 2022 third-quarter results. Moreover, the company is facing supply-chain issues, which have marred its optimal performance. Given the rising competition, BA might take a while to regain its lost position. Therefore, the stock is best avoided now.

How Does Boeing Company (BA) Stack up Against Its Peers?

While BA has an overall POWR Rating of D, one could check out these other stocks within the Air/Defense Services industry: Textron Inc. (TXT), Elbit Systems Ltd. (ESLT), and Moog Inc. (MOG.A) with an overall A (Strong Buy) rating.

BA shares were trading at $202.18 per share on Thursday morning, down $1.46 (-0.72%). Year-to-date, BA has gained 6.14%, versus a -0.90% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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