Can the Dreamliner Carry Boeing through 2013?
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.
T = Technicals on the Stock Chart Reflect Catalysts
As of January 11, Boeing’s stock price was 0.85 percent below its 20-day simple moving average, or SMA; 1.64 percent above its 50-day SMA; and 404 percent above its 200-day SMA.
Since the beginning of 2013, the stock has been in a downward trend, losing 0.27 percent this year to date. However, the stock is up 2.64 percent over the past 52-week period.
As a result of the fire and fuel leak, trade volume on January 8 was nearly four times its average of about 5.5 million. The stock came down 2.6 percent over the course of the day. Here’s a look at the stock’s performance since the end of December.
T = Trends Still Support the Company
As of January 4, Boeing had 848 total orders for the 787 Dreamliner, 49 of which have been delivered, leaving 799 unfilled. At about $225.2 million per plane ($206.8 million for the 787-8, $243.6 million for the 787-9), it doesn’t take a quant to figure out that there is nearly $200 billion sitting on the table here. (Fun fact, Boeing invested about $32 billion to develop the Dreamliner.)
Here are the airlines who have received deliveries so far:
|All Nippon Airways||66||17|
|LOT Polish Airlines||8||2|
|United Air Lines||50||6|
Another fun fact: General Electric (NYSE:GE) is lined up to manufacture the engines for 338 Dreamliners, while Rolls Royce is lined up to manufacture engines for 234.
So far, it looks like the only airline to have cancelled an order for the Dreamliner was Qantas Airways, which scrapped plans to buy 35 Dreamliners due to a mix of financial problems and delivery delays — all before the recent string of mishaps.
For the dividend hunters out there, Boeing pays out with a yield of 2.5 percent (currently $1.94 per share). The company is trading at a trailing-twelve-months P/E of 13.06 (forward of 14.48) and a price to book of 7.56.
As noted, analysts are pretty bullish on this stock with a majority “Buy” and a leaning toward “Strong Buy.” However, there has been a lot of hype (each way) about the Dreamliner, and analysts may have jumped the gun on how much the plane would drive up the price of the company’s floating equity.
Because of this and the current Dreamliner debacle, Boeing is a WAIT AND SEE. Long-term bulls could see the current dip as an opportunity to buy cheap, but it would be prudent to make sure nothing crazy happens first — like gung-ho regulatory officials try to ground the whole damn fleet, or something.
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