Will the Dreamliner Carry Boeing through 2013?

With shares of The Boeing Company (NYSE:BA) trading around $74.13, 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 NegativeBoeing Annual Meeting

According to its own brief, “Boeing is the world’s largest aerospace company and leading manufacturer of commercial jetliners and defense, space and security systems.” Analysts supported this claim throughout 2012 with a string of “Buy” and “Outperform” ratings, logging a mean price target of $86.75.

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.

On Monday evening, a 787 Dreamliner owned by Japan Airlines caught fire, reportedly because of a battery in an auxiliary power unit that overheated. For the curious, the battery was made by GS Yuasa Corp., and the power unit was made by United Technologies Corp. (NYSE:UTX), but responsibility for the small flame and a minor explosion fall on Boeing’s shoulders.

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Of course, the flame immediately made headlines and some bears started to growl. Industry observers were quick to rebut claims that there was something up with the Dreamliner. However, on the next day a fuel leak was found in a different Dreamliner, also owned by Japan Airlines, and the selling pressure began in earnest.

The stock closed down 2.01 percent on Monday and another 2.63 percent on Tuesday, erasing its New-Year’s pop and prompting 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 FAA is not likely to take any immediate action,” said Leake, according to the Chicago Tribune. “But the 787 has run out of mulligans, and even though this may be an unrelated battery issue, any new electrical event could have the FAA take more drastic measures to include the grounding of the fleet.”

“Recent events suggest that something is amiss with how all of these new power hungry components are interacting once installed in the aircraft,” he added. Those events include the fleet being grounded in November of 2010 during testings 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.

Before January’s series of unfortunate events, Boeing CEO Jim McNernery called the previous string of incidents “normal introductory squawks,” and most observers and experts agreed with him. But the January 8 selling pressure indicates that investors see a red flag.

According to The Wall Street Journal,  the U.S. National Transportation Safety Board has opened a formal investigation into the January 7 fire. Japanese safety officials have also ordered Japan Airlines and All Nippon Airways to inspect their Dreamliners, but early reports indicate that no additional problems have been found so far.

T = Technicals on the Stock Chart Reflect Catalysts

As of January 8, Boeing’s stock price was 2.08 percent below its 20-day simple moving average, or SMA; 0.58 percent above its 50-day SMA; and 2.68 percent above its 200-day SMA.

Since the beginning of 2013, the stock has been in a downward trend, losing 1.63 percent this year to date. However, the stock is up 3.25 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:

Airline Ordered Delivered
Air India 27 5
All Nippon Airways 66 17
Ethiopian Airlines 10 4
Japan Airlines 45 7
LAN Airlines 26 3
LOT Polish Airlines 8 2
Qatar Airways 30 5
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.

Conclusion

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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