Dow component The Boeing Company (BA) is trading sharply lower on Wednesday after missing second quarter 2020 earnings estimates by a country mile. The aerospace giant reported a loss of $4.79 per share, much worse than -$2.63 expectations, while revenue at $11.81 billion missed the $12.95 billion consensus. The aerospace giant reported a healthy backlog of more than 4,500 commercial airplanes but failed to comment on the likelihood of massive cancellations in the second half of 2020.

Key Takeaways

  • Boeing missed second quarter earnings and revenue estimates by wide margins.
  • The stock has been engaged in a steep decline since March 2019.
  • The downtrend could eventually reach the first quarter low.

Commercial airplane revenue fell a staggering 65% year over year. Abnormal production costs as a result of production slowdowns and the mothballing of new airplanes also affected quarterly results, which were dismal all-around. Notably, the company offered little insight about 737-MAX demand in light of massive first half cancellations and another delay in getting the troubled jetliner back in the sky.

Wall Street consensus remained guarded heading into the release, with a "Hold" rating based upon seven "Buy," seven "Hold," and three "Sell" recommendations. Price targets range from a low of $110 to a Street-high $277, while the stock opened this morning's session more than $16 below the median $186 target. The sell-the-news reason doesn't help this lopsided equation, which suggests that analysts are overvaluing Boeing's long-term outlook.

Production or product costs refer to the costs incurred by a business from manufacturing a product or providing a service. Production costs can include a variety of expenses, such as labor, raw materials, consumable manufacturing supplies, and general overhead. Product costs may also include those incurred as part of the delivery of a service to a customer.

Boeing Long-Term Chart (1997 – 2020)

Long-term chart showing the share price performance of The Boeing Company (BA)
TradingView.com

A long-term uptrend topped out at $60.50 in 1997, while a 2001 breakout attempt failed, yielding a broad double top that broke to the downside in 2003. That marked a climactic selloff, ahead of an uptrend that posted superior gains during the mid-decade bull market. This buying impulse topped out near $108 in 2007, giving way to a decline that accelerated during the 2008 economic collapse. The stock posted a six-year low near $30 in 2009 and turned higher into the new decade, returning to the prior high in 2013.

An immediate breakout failed to generate upside until 2017, when the stock took off in a powerful advance that posted an all-time high at $446 in March 2019. An Ethiopian 737-MAX jetliner then crashed, forcing a worldwide grounding that is still in force as we head through the second half of 2020. Price action completed a multi-year double top in February and broke support near $300, generating a gut-wrenching selloff that ended at a seven-year low in March.

Boeing Short-Term Chart (2018 – 2020)

Short-term chart showing the share price performance of The Boeing Company (BA)
TradingView.com

The decline settled at 2013 breakout support, while the bounce into June reversed at the .382 Fibonacci selloff retracement level. Price action has now settled at the 200-month exponential moving average (EMA) – if this level does not hold, Boeing is at risk of a breakdown through the March low. It may already be too late because the 17-month downtrend has carved the outline of an Elliott five-wave decline, with the three-month uptick marking the fourth wave countertrend. If so, Boeing stock may not bottom out until it's trading well into the double digits.

A bottom is the lowest price traded or published by a financial security, commodity, or index within a particular referenced time frame. The time frame can be a year, a month, or even an intraday period, but when referenced in financial media or studies, this term refers to a significant low point of interest.

The on-balance volume (OBV) accumulation-distribution indicator also warns of tough times ahead, first slumping to a multi-year low in May and then zooming to an all-time high one month later. Aggressive selling pressure in the past two months has generated a failed OBV breakout, with shareholders jumping ship after dashed hopes for a rapid recovery and 737-MAX airworthiness certificate. Unfortunately, there may not be demand for the jetliner after it returns to the skies, with many analysts now expecting slumping air travel into 2025.

The Bottom Line

Boeing is trading sharply lower after the aerospace giant missed second quarter earnings estimates, and the stock could test the March low in coming months.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.