Jack Sherwin – Aspiring Stock & Forex Market Analyst
I am working to build a published portfolio of stock and forex analysis with Samuel and Co Trading. I will be posting my analysis weekly, so keep your eyes peeled for my market outlook. I would like to open my analysis for discussion and feedback from the community.
Stock in question: NYSE:BA (The Boeing Company)
I am sure you have seen the recent news stories regarding Boeing’s mishaps over the past 6 months. However, are these situations now presenting a buying opportunity in Boeing? With a market cap of $192Billion, Boeing design and manufacture commercial jets, defence equipment such as the F-15 fighter Jet, rockets, rotorcraft, satellites and missiles worldwide. Boeing has faced strong criticism in recent times as we saw two unfortunate accidents resulting in the loss of 346 lives. In preliminary reports, it is stated that the crashes were a result of the MCAS (Manoeuvring Characteristics Augmentation System) being activated due to the erroneous angle of attack information. In simpler terms, the angle of attack data makes the MCAS think that the plane is going to stall so it drops the nose to prevent this from happening only shortly after take-off. This presents an opportunity for Boeing to adjust the software and roll this out to the 393 grounded 737 MAX planes as well as the 4,500+ units on the order backlog to get these planes back in the skies. CEO Dennis Muilenburg released a statement on April 4th stating “We’re taking a comprehensive, disciplined approach, and taking the time, to get the software update right. We’re nearing completion and anticipate its certification and implementation on the 737 MAX fleet worldwide in the weeks ahead”. Since this statement, on April 17th Muilenburg said “We’re making steady progress toward certification”. Let’s have a look at what this has done to the stock.
From this chart, we can see the decline as a result of the aforementioned accidents firstly in October resulting in a 25% drop in the stock value in the months to follow. As the markets regained their positive sentiment in late December into January, we saw a rally to new all-time highs of around $440. This was followed by news of the second crash this time seeing the stock drop 22% to its current level. I can see this continuing to the $320 or $300 level before seeing some more upside as the groundings of the 737 MAX’s are lifted by authorities. There are some particular levels of interest in this situation with the $370 level showing to have acted as resistance on previous occasions so we could possibly see price stall at this level before moving higher. Let’s have a look at the fundamentals leading to this move.
Currently, Boeing is sitting at a strong 36% discount against its intrinsic value based on future cash flows with more room to move to the downside opening further discount. The intrinsic value is $537 which I don’t see as achievable in the shorter term however I can see this stock moving back to it’s all-time highs at $440. However, only on the condition that the FAA (Federal Aviation Administration) certify the fleet fit to fly again. I would also hope to see an increase in output back to the previous 52 units per month up from its reduced 42 units per month currently. Assuming $440 as a target, currently puts the stock at a 23% discount.
Broker ratings for this stock are showing to be a bit of a mixed bag. The 25 ratings are showing an average of buy with 8 strong buys, 9 buys, 6 holds and 2 strong sells.
A regular point of interest in my stock analysis is the dividend of which Boeing is a very average payer. Boeing has a rich history of paying a stable dividend which is definitely a point in their favour however the current rate is a mere 2.41%. This does put it above the bottom 25% of payers in the US however they are a way off the 3.86% minimum of the top 25% in the same sector.
Touching down on some further fundamentals here we have the last full year reports from Boeing for their net income, total equity and cash from operating activities. As you can see there was some good growth during 2018 for both the net income and cash levels with income growing by 23% from $8.5B to $10.5B as well as cash growth of 15% from $13.3B to $15.3B. However, as you can see, Boeing has struggled with its total equity in the past 5 years seeing drops in equity each year before 2017. With this being said, if we see an upside surprise in total equity in the preliminary report for 2019, this could be highly exaggerated in the stock price reflection to follow and we could see some strong upside moves in this situation.
In conclusion, Boeing is facing some troubling times and this is not to be taken lightly, I do see some further downside before opportunities arise. This company is a clear market leader and in high demand with 5,000+ units on order. I will be watching the news carefully for the certification from the FAA for the 737 MAX fleet to fly again. Thank you for reading my report today.
Boeing – investors – annual reports – http://investors.boeing.com/investors/financial-reports/default.aspx
Boeing – 737 MAX updates – http://www.boeing.com/commercial/737max/737-max-update.page
Boeing – Wikipedia – https://en.wikipedia.org/wiki/Boeing
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