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737 MAX deliveries are key if the plane maker is to generate cash this year, but maintaining June’s positive trends won’t be easy

The once-troubled 737 MAX jet now carries Boeing investors’ hopes and dreams.

On Wednesday, the Arlington, Va.-based plane maker reported second-quarter earnings that fell short of Wall Street expectations. Still, free cash flow, which is a more important metric, was better than forecast thanks to a jump in MAX deliveries. If it keeps this going, Boeing should hit its target of positive cash flow for the year for the first time since 2018.

To be sure, defense revenues continued to disappoint and U.S. regulators still haven’t cleared the way for its other key product, the 787 Dreamliner, following a series of defects. But deliveries seem set to resume this summer, and the fallout from the war in Ukraine will probably soon send a wave of cash toward defense contractors.

The fate of the MAX is subject to many more unknowns, both positive and negative. It may be the key driver of Boeing’s stock, which is down more than 50% since the onset of the pandemic but still not an obvious buy. The plane maker is trading at an enterprise value of around 12 times expected 2024 earnings—the year when travel is expected to fully recover. This is in line with pre-Covid valuations, but those were historically elevated.

On the one hand, the MAX is selling better than its detractors predicted. During last week’s Farnborough International Airshow, it garnered 233 orders, including 100 planes by Delta Air Lines —the only top U.S. carrier that hadn’t yet bought it. This compared with 73 orders for Airbus’s  competing A320 family. The A320 remains more popular overall. Counterintuitively, though, this may work in favor of the MAX right now, as airlines are much more likely to get their planes ahead of time. While the A320 has a backlog of around 6,000 orders, the MAX’s is closer to 3,400 due to cancellations in recent years.

Excerpt from WSJ
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