The COVID-19 pandemic has significantly affected the commercial aerospace industry, as travel has declined dramatically, resulting in a significant reduction in aircraft demand.
According to a Deloitte report, 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 tool, let us compare two aerospace companies, Boeing and Airbus, and see how Wall Street analysts feel about these stocks.
Boeing’s commercial aircrafts business has been in trouble lately, with regulatory pressure leading to delays in the company’s scheduled aircraft deliveries. Let us look at whether these regulatory pressures could drag down the stock and how it could impact its aircraft deliveries.
Boeing is expected to announce its Q2 results on July 28.
Last week, the company announced its Q2 deliveries. The company delivered 50 narrow-body 737 commercial airplanes, followed by 12 wide-body 787 models.
The company added that it has made more progress in Q2 to return the 737 Max to service in more international markets, as well as ramping up the rate of 737 deliveries.
However, according to a Reuters report from earlier this week, the Federal Aviation Administration (FAA) has asked the operators of Boeing 737 airplanes to inspect and address the issue of failure of cabin altitude pressure switches. According to FAA, the failure of the cabin altitude pressure switches could result in falling oxygen level in the planes.
BA stated that it supported the FAA’s direction, which makes mandatory the inspection interval that it issued to the fleet in June.
To add to the company’s woes, last week, Boeing stated that undelivered 787s would require more work after the FAA identified certain manufacturing quality issues while undertaking a system-wide inspection of Boeing’s 787 shimming processes.
The FAA said that the problem lies near the nose of some of the planes but does not pose any immediate threat to flight safety. Boeing announced that it would fix the issue before sending the aircraft out for delivery. (See Boeing stock chart on TipRanks)
Following the news of the setback regarding 787 airplanes, Cowen analyst Cai Rumohr reiterated a Buy and a price target of $290 (40.1% upside) on the stock. While Rumohr acknowledged the setback regarding the 787 deliveries, the analyst was optimistic regarding BA.
He stated, “However, improving air traffic as VAX [vaccination] rates rise is starting to bolster demand; and while lingering stringent FAA oversight and timing of China's MAX approval limit upside to 2021, 2022-24 look brighter.”
The analyst stated that by the end of the year, BA expects to deliver less than fifty of the around one hundred 787s that it has in its inventory. As a result, Rumohr has trimmed the “2021 estimate by $0.30 to a loss of $1.65; and we're hiking 2022 by $0.15/share to a profit of $2.00 assuming that some but not all of the 787 shortfall is recovered in 2022. However, we still see $6.00/share in 'core' EPS by 2024.”
Rumohr expects BA to reach a cash flow of $21 per share by 2024.
Consensus among analysts on Wall Street is a Moderate Buy based on 9 Buys and 8 Holds. The average Boeing price target of $274.21 implies approximately 15.1% upside potential to current levels.
Airbus Group SE (EADSF)
Airbus’s reportable business segments include Airbus, Airbus Helicopters, and Airbus Defense and Space. Airbus is expected to report its Q2 results on July 29.
The company recently stated its commercial aircraft orders and delivery numbers at the end of Q2. Airbus delivered 816 commercial A300 / A310 aircraft against the same number of orders. At the end of Q2, the company had a total of 20,414 orders with 13,489 commercial aircraft delivered.
According to Deutsche Bank analyst Christophe Menard, deliveries of commercial aircraft in Q2 were up by 98 units, with higher-than-expected volumes. As a result, the analyst expects sales of €10.5 billion, up 111% year-over-year, and a positive swing for EBIT at €2.8 billion.
The analyst added, “The bulk would be the reversal in fixed cost absorption (we estimated €1.8bn), but higher A320 volumes and improved mix could contribute €900m.”
Menard has a Buy rating and a price target of €122 on the stock.
When it comes to Airbus’s Helicopters and Defense and Space business, the analyst expects profitability levels to be similar in Q2. According to Menard, the helicopter business is expected to have a profit margin of 9% while Defense and Space is projected to have a profit margin of 8%, versus the same period last year.
Menard added, “Our 2021 figures are based on 600 deliveries, which looks realistic, but increasingly conservative.”
In Q1, Airbus’s revenues remained stable year-over-year at €10.5 billion. The company reported an adjusted EBIT of €694 million versus €281 million in the same quarter last year. (See Airbus stock chart on TipRanks)
Airbus reported earnings per share of €0.46 in Q1 versus 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, while its adjusted EBIT is projected to be €2 billion.
Consensus among analysts on Wall Street is a Moderate Buy, based on 10 Buys and 6 Holds. The average Airbus price target of $145.08 implies approximately 19% upside potential to current levels.
While analysts are cautiously optimistic about both stocks, based on the upside potential over the next 12 months, Airbus seems to be a better Buy.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities