Boeing soared again.
Editor’s note: This article comes from the WeChat public account “Mengshou Finance” (ID: mengshoucaijing), author Beast Finance.
In last week’s after-hours trading, Boeing’s share price exceeded $178 per share. For Apple, whose stock price was much higher than $400 at the beginning of 2019, this does not seem to be much, but it means that the company’s stock price has doubled from the multi-year low of $89 in March this year. In the next few days, the stock price continued to rebound over $200. In the event that business fundamentals are expected to improve, improved investor sentiment and technical factors may maintain this wave of gains in the short term.
Due to the double push of good news, Boeing shares jumped nearly $20 last Wednesday. First, SMBC Aviation Capital said it will postpone but will not cancel orders for some Boeing 737max aircraft. The second good news is the updated performance of the Third Point offshore fund, which listed Boeing as the winner in May.
Boeing’s confidence has been rising since the beginning of May. At the time, the company raised $25 billion from the bond market, which is expected to prevent further capital raising or the need for US government assistance in the short term.
The offering was also oversubscribed, which means the company received better-than-expected pricing. Previously, the company’s credit rating was almost reduced to junk. The lower-than-expected interest expense will help the company recover profitability faster, and it will also help free cash flow to move forward. Even for the 40-year bonds issued, the company can earn a yield of less than 6% coupon rate, which is worth noting considering the recent pessimism about the company.
Investors also want to forget about the worst. At the end of May, the company resumed production of the 737max and will gradually increase production for the rest of the year. As shown in the chart below, in dollar terms, the second quarter is expected to be the bottom of quarterly revenue. The company is expected to achieve year-on-year growth in the fourth quarter of this year, and is expected to achieve breakeven during this period and return to profitability next year.
Restarting production of the 737max is a key part of reversing the situation and will help the company restore positive free cash flow. In the first quarter of this year, the company reported operating cash consumption of $4.3 billion, compared with operating cash flow of $2.8 billion in the same period last year. Coupled with some capital expenditures and quarterly dividends, the net debt balance rose from US$17.3 billion to US$23.4 billion. Dividends have been suspended and no shares were repurchased in the first quarter.
Boeing’s share price has not only rebounded in recent weeks, but it has also broken through key technology levels. As shown in the chart below, on May 21st, the stock closed above the 50-day moving average, and hasn’t dropped since. The next major moving average is the 100-day line (green line). The stock reached its highest point last Friday, but closed slightly below the 100-day line.
Although Boeing’s share price still has a long way to go to return to historical highs, it has now more than doubled from recent lows. With the restart of 737max production, investors look forward to a better performance in the second half of this year. The cash flow situation may be further improved, and the main debt raising in May temporarily put the balance sheet issue aside. Therefore, when the stock price’s 50-day moving average starts to rise for the first time in a few months, we will not be surprised to see that the rally continues.