Can Boeing's Earnings Provide Liftoff After 787 Battery Glitch?
Estimize | Apr 23, 2014 01:15AM ET
Boeing Company (NYSE:BA) is set to report FQ1 2014 earnings before the market opens on Wednesday, April 23rd. Boeing is one of the world’s largest producers of aircraft, satellites, and rockets and is the second largest aerospace and defense contractor. On Tuesday peer Lockheed Martin reported before the opening bell beating EPS estimates but producing less revenue than Wall Street expected. This quarter Boeing experienced a battery problem with its high-tech 787 Dreamliner passenger plane which caused a small fire on a grounded plane. Boeing responded by switching battery vendors to gain FAA approval. The costs associated with the battery hitch are expected to hurt Boeing on the bottom line. This quarter Wall Street expects Boeing to report 19c lower EPS than last year alongside a 7.5% increase in year over year revenue. Here’s what investors expect from Boeing Wednesday.
The current Wall Street consensus expectation is for Boeing to report $1.54 EPS and $20.304B revenue while the current Estimize.com consensus from 22 Buy Side and Independent contributing analysts is $1.64 EPS and $21.172B in revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Boeing to beat the Wall Street consensus on both EPS and revenue by a significant margin.
Over the previous 6 quarters the consensus from Estimize.com has been more accurate than Wall Street in forecasting Boeing’s EPS everytime and has been more accurate in predicting revenue 3 times. By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students, and non professional investors Estimize has created a data set that is more accurate than Wall Street up to 69.5% of the time, but more importantly it does a better job of representing the market’s actual expectations. It has been confirmed by Deutsche Bank Quant. Research and an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.
The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a much wider than usual differential between the two groups’ expectations.
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The distribution of estimates published by analysts on the Estimize.com platform range from $1.51 to $1.90 EPS and from $20.476B to $22.500B in revenues. This quarter we’re seeing a large distribution of estimates on BA.
The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signaling less agreement in the market, which could mean greater volatility post earnings.
Over the past 4 months the Wall Street EPS forecast dropped from $1.78 to $1.54 while the Estimize consensus moved in the opposite direction rising from $1.58 to $1.64. Meanwhile the Wall Street revenue consensus gradually declined from $22.315B to $20.304B while the Estimize consensus slid at the end of the period from a high of $21.780B to $21.172B. Timeliness is correlated with accuracy and downward analyst revisions at the end of the quarter can be a bearish indicator, in this case however the Estimize consensus is still significantly higher than Wall Street’s.
The analyst with the highest estimate confidence rating this quarter is JL7913 who projects $1.69 EPS and $20.784B in revenue. JL7913 is ranked 67th overall among over 4,150 contributing analysts. Over the past 6 months JL7913 has been more accurate than Wall Street in forecasting EPS and revenue 56% and 48% of the time respectively throughout 143 estimates. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case JL7913 is expected Boeing to beat the Wall Street consensus but fail to live up to the Estimize.com community’s expectations.
This quarter both analysts from Wall Street and the Estimize community expect Boeing’s profit to be lower than last year. Costs associated with the 787 Dreamliner battery glitch are expected to make a significant dent on Boeing’s earnings. But the Estimize community still maintains significantly higher EPS and revenue expectations than Wall Street does.
Get access to estimates for Boeing published by your Buy Side and Independent analyst peers and follow the rest of earnings season by heading over to Estimize.com. Register for free to create your own estimates and see how you stack up to Wall Street.
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