With shares of The Boeing Company (NYSE:BA) trading around $75.16, is BA an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalysts for the Stock’s Movement are Negative
Boeing entered the new year with a positive buzz, climbing 2.27 percent on January 2 and following it up with two more days of gains before the first full week of the new year came rolling around with the bad news bears at the wheel.
Before the week of January 7, Boeing’s flagship 787 Dreamliner had been making headlines for both good and bad reasons. A new delivery of the highly-advanced aircraft sent a tremor of excitement through enthusiast circles, while expected growing pains, such as minor electrical and mechanical issues, piqued the interest of the general public.
Some of those growing pains include the fleet being grounded in November of 2010 during testing because of an electrical fire, the grounding of two United Air Lines (NYSE:UAL) flight in December because of issues with electrical panels, and the grounding of a Qatar Airways flight because of issues with a generator in the same month.
Every new aircraft will have “normal introductory squawks” to work out, as Boeing CEO Jim McNernery put it. But five issues over the course of five days with five separate 787 Dreamliners quickly turned tailwinds into headwinds. Issues included a battery fire, brake issues, a cracked cockpit windshield, and an oil leak, and the bad press quickly turned into a firestorm that catalyzed heavy selling pressure and triggered a response from the Federal Aviation Administration.
“In light of a series of recent events, the FAA will conduct a comprehensive review of the Boeing 787 critical systems, including the design, manufacture and assembly,” reported the Federal Aviation Administration in a statement on January 11. “The purpose of the review is to validate the work conducted during the certification process and further ensure that the aircraft meets the FAA’s high level of safety.” That is, they believe the plane is safe, they are just double-checking their work.
The Dreamliner’s teething pains prompted a swift downgrade from BB&T Capital Markets analyst Carter Leake. Leake moved his rating on the stock from a “Buy” to a “Hold,” now just one of four analysts out of 26 who cover the stock who don’t have a “Buy” or “Strong Buy” recommendation.
The biggest fear is that “any new electrical event could have the FAA take more drastic measures to include the grounding of the fleet,” said Leake.