News and analysis

Northrop Grumman stocks are trading close to their highs. That is a very impressive achievement  considering the current general market correction. The company presented a new B-21 Raider, a stealth strategic bomber. This aircraft could be compared to the introduction of a Boeing 787 that was a true milestone in aviation history.

This bomber is projected to replace the B-2 and B-52 models and cost much less that an average $2 billion per one B-2. B-21 is scheduled to fly in 2023, but not many details about the aircraft’s construction has been disclosed. Cloud computing was reported to be used to enhance the control over military objectives achievement.

Analysts suggest that the cost of each B-21 aircraft will not exceed $550 million, while the U.S. Air force is planning to buy from 100 to 175 units. This may bring the Northrop Grumman $55-96 billion, with some revenues to be received in 2023. Revenues from this project are expected to grow significantly in 2024. The company has many military orders, so the price target of $700 per NOC stock seems to be quite achievable.

Boeing’s major peer, European Airbus, is seen to be in a slightly better condition as the latter has more diversified aircraft deliveries. The company’s management is aiming to increase production to 75 commercial aircraft a month with Airbus A320neo as a flagship. The company is moving deliveries for next year as it simply could not produce the number of aircrafts needed to meet  demand.

The company does not have enough qualified employees and is facing a lack of components needed to establish a steady production. Management has revised the production plan from 720 to 700 commercial aircrafts for the year of 2022. Even with this decrease, the plan is questionable as the company produced 495 aircrafts by the beginning of November. During some months production slowed down to 30-40 units, while during some other month is was above 50 units. The peak month for production is usually the last month of the quarter. But there are some positive developments now, as Airbus produced 60 aircrafts in October, beating September by 55 units.

Nevertheless, Airbus must produce 205 aircrafts in the last two months of this year in order to stick to the plan and this seems to be very complicated. The company has 61 aircrafts in production for November and has not managed to produce more than 89 units during the month of December over the last three years.

In order to push stock prices up, Airbus needs to restore production to prepandemic levels. The company delivered 863 commercial aircrafts in 2019, 566 in 2020, and 611 in 2021 and it seems that for 2022 the production figures will not exceed the levels of the past two years by very much. But even if production is above 650 aircrafts, it would be a positive signal for AIR stocks.

BA shares are 50% off their peak values which were reached at the beginning of 2020. But they have been moving upwards over the last two months, beating the broad market in terms of returns. Its stock price has added about 40% since the beginning of October. This upside is closely related to management’s positive forecast of the Free Cash Flow (FCF). FCF was negative at -$4.4 billion in 2021, while this year it is expected to reach $1.5-2 billion on the positive side.  The company is planning to increase its cash generation to $10 billion by 2025. Boeing considers that its existing demand is strong enough to increase production to 50 commercial aircrafts a month, even if deliveries to China are excluded. The is a very bullish signal for BA stocks.

Wide-body aircrafts like Boeing 787 are expected to dominate the market, while its price could exceed narrow-bodied aircrafts by 200%. Boeing received orders to build 106 narrow-bodied aircrafts and 16 wide-body aircrafts in October for $7.9 billion. During the same month last year there were only ten orders, three of which were later canceled  so  the final net value of orders was $360 million. This year Boeing received orders worth $40.1 billion by the end of October, while the company had only $24.8 billion worth of orders for the same period last year. The number of orders improved dramatically because of the Boeing 737 MAX’s return to the sky.

On the negative side the company is facing a staggered schedule of production that is mostly linked to the last month of the quarter when most planes are completed on paper to present better quarterly reports. This year Boeing produced 363 commercial aircrafts for $25 billion up until the end of October compared to 268 aircrafts worth $20.5 billion for the same period last year. So, it is seemingly a positive upside. But, when we dive into details, we see that 51 aircrafts were produced in September, while only 35 were finished in October. So, the production schedule could be compared to a jigsaw with uneven figures.

During the last two years of the pandemic, Boeing started construction of many aircrafts that now need some minor alterations to claim the aircrafts ready for delivery. Thus, Wall Street is not exaggerating about the number of aircrafts produced. Quite the opposite, more stable production is needed to convince investors of the steady recovery path, that would boost aircraft maker stock prices to prepandemic levels.

Apple stocks have had a very impressive performance amid a clearly bearish market while losing only 20% of their peak values. However, investors should be prepared for elevated turbulence in these stocks considering the situation in China.

China’s zero-tolerance policy to COVID-19 led to a massive exit of employees from Zhengzhou city plant amid fears over tightening curbs. Over 200,000 workers are rumoured to have left the plant. If this is true, the production of iPhone 14 Pro and iPhone 14 Pro Max would be very complicated with no clear outlook on when it could be resumed. The delivery delay shown on Apple’s website has already hit six weeks. Americans who ordered the brand new IPhone for Thanksgiving Day will only receive it for Christmas now. Meanwhile the last two months of the year are very valuable for any mass-market company in terms of holiday sales.

Apple is planning to move iPhone production to India. But that would require years. The company has already invested $75 billion in the Chinese market and now this investment may be at risk as the ruling Communist party in China may put a local ban on the sale of Apple products. China is the third largest market for Apple with the United States at the first place with $153 billion and Europe at the second with $95 billion. Wall Street is expecting Apple’s earning to go up by five percent over the next three years. So, any troubles with production in China may alter these forecasts.