The COVID-19 pandemic has significantly affected the commercial aerospace industry as travel has drastically declined, leading to a significant reduction in aircraft demand.
According to an Deloitte While the commercial aerospace sector is expected to recover, albeit slowly, travel is unlikely to return to pre-pandemic levels before 2024.
Using the TipRanks stock comparison let’s compare two airlines, Boeing and Airbus, and see what Wall Street analysts think about these stocks.
Boeing’s commercial aircraft operations have been experiencing difficulties of late, with regulatory pressures leading to delays in scheduled aircraft deliveries. Let’s see if this regulatory burden could drag inventory down and how it could affect aircraft deliveries.
Boeing is expected to announce its Q2 results on July 28.
Last week, the company announced its second-quarter deliveries. The company supplied 50 narrow-body 737 commercial aircraft, followed by 12 wide-body 787 models.
The company added that it made more progress in the second quarter to bring the 737 Max back into service in more international markets, as well as ramp up 737 deliveries.
However, according to a Reuters In a report from earlier this week, the Federal Aviation Administration (FAA) has asked Boeing 737 aircraft operators to inspect and address the issue of cabin height pressure switches. According to the FAA, failure of the cabin pressure switches can lead to a drop in oxygen levels in the aircraft.
BA said it supported the direction of the FAA, which mandates the inspection interval it gave to the fleet in June.
Adding to the company’s woes, Boeing said last week that undelivered 787s would require more work after the FAA identified certain manufacturing quality issues during a system-wide inspection of Boeing’s 787 shimming processes.
The FAA said the problem is near the noses of some aircraft, but does not pose an immediate threat to flight safety. Boeing announced it would resolve the issue before the plane was delivered. (See Boeing stock chart on TipRanks)
Following news of the 787-aircraft setback, Cowen analyst Cai Rumohr repeated a buy and a $290 price target (up 40.1%) for the stock. While Rumohr acknowledged the setback related to 787 deliveries, the analyst was optimistic about BA.
He stated: “However, improve air traffic like VAX” [vaccination] the rise in rates is starting to boost demand; and while tight FAA oversight and timing of China’s MAX approval limit continue upwards through 2021, 2022-24 look better.”
The analyst said BA expects to ship less than 50 of the roughly 100 787s it has in stock by the end of the year. As a result, Rumohr reduced the 2021 estimate by $0.30 to a loss of $1.65; and we are up $0.15/share in 2022 to a gain of $2.00 assuming some of the deficit of 787 countries is repaired in 2022. However, we still see $6.00/share in core EPS in 2024.”
Rumohr expects BA to achieve cash flow of $21 per share by 2024.
Analyst consensus on Wall Street is a moderate buy based on 9 buys and 8 held. The average Boeing price target of $274.21 implies about 15.1% upside potential to current levels.
Airbus Group SE (EADSF)
Airbus’ reportable business segments include Airbus, Airbus Helicopters and Airbus Defense and Space. Airbus is expected to announce its second quarter results on July 29.
The company recently announced its orders and delivery numbers for commercial aircraft at the end of the second quarter. Airbus delivered 816 commercial A300/A310 aircraft against the same number of orders. At the end of the second quarter, the company had delivered a total of 20,414 orders and 13,489 commercial aircraft.
According to an analyst at Deutsche Bank Christophe Menard, commercial aircraft shipments increased by 98 units in the second quarter, with higher-than-expected volumes. As a result, the analyst expects revenue of €10.5 billion, an increase of 111% year-over-year and a positive swing for EBIT of €2.8 billion.
The analyst added: “The bulk would be the reversal of fixed cost absorption (we estimate €1.8 billion), but higher A320 volumes and an improved mix could contribute €900 million.”
Menard has a buy recommendation and a price target of €122 on the share.
When it comes to Airbus’ helicopters and defense and aerospace businesses, the analyst expects profitability to be similar in the second quarter. According to Menard, the helicopter business is expected to have a profit margin of 9%, while Defense and Space is expected to have a profit margin of 8%, compared to the same period last year.
Menard added: “Our figures for 2021 are based on 600 deliveries, which looks realistic but is becoming more conservative.”
In the first quarter, Airbus’ annualized revenues remained stable at €10.5 billion. The company reported adjusted EBIT of €694 million compared to €281 million in the prior year quarter. (See Airbus Stock Chart on TipRanks)
Airbus reported earnings per share of €0.46 in the first quarter, compared to a loss per share of €0.61 in the same period last year.
Airbus stated in its press release that it hopes to achieve the same number of commercial aircraft deliveries as last year in FY21, with adjusted EBIT expected to reach €2 billion.
The consensus among Wall Street analysts is a moderate buy, based on 10 buys and 6 held. The average Airbus price target of $145.08 implies about 19% upside potential to current levels.
While analysts are cautiously optimistic about both stocks, Airbus appears to be a better buy over the next 12 months based on upside potential.
Disclaimer: The information in this document is for informational purposes only. Nothing in this article should be construed as a solicitation to buy or sell securities