Between Dec. 26 and Mar. 1, Boeing (NYSE:BA) stock staged an impressive rally and went from a low of $242.97 to a high of $446.01. However, March has not been kind to the shareholders of Boeing, the second-largest U.S. government contractor. On Mar. 8, Boeing stock fell to finish the week at $422.54. Then on Sunday, Mar. 10, Ethiopian Airlines suffered a fatal accident involving a Boeing 737 Max 8 aircraft.
After a tumultuous week, BA stock closed Mar. 15 at $378.99.
In light of the tragedy, what can we expect from BA shares in the second half of March? Although Boeing stock will likely recover in due course, reflecting the fundamental strength of the company, it may still be too soon to hit the ‘buy’ button.
Boeing’s Second Fatal Accident in Six Months
The crash was, unfortunately, the second deadly incident of the same plane, one of the most popular models of Boeing, in under six months.
Last week shaped up to be tough for BA stock. Following the tragedy, countries overseas closed their airspace to Boeing’s 737 Max 8 one by one, when finally the U.S. Federal Aviation Administration (FAA) also grounded the top-selling jets until May.
Several analysts have also issued stock downgrades, highlighting concerns over the reasons behind the accident and urging investors to not rush into the shares until the investigation results became public.
Which Way for the BA Stock Price?
The long-term impact of the two consecutive accidents on Boeing and its stock price will depend partly on the result of the crash investigation and partly on Boeing’s response to the potential issues that may be highlighted in that report. Meanwhile, let us look at the fundamental data and technical charts to determine what may be next for the BA stock price.
Fundamental Considerations: The investigation involving the BA 737 Max jetliner, the fastest-selling plane in Boeing’s history, is still in the early phases. However, as the flight recorders, i.e., the “black boxes,” arrived in France for decoding, the FAA highlighted unspecified evidence that linked the two fatal crashes of the past six months together.
Boeing has now halted all 737 Max deliveries to customers that had started in 2017. At present, about 370 of these planes are in operation, but Boeing also has almost 5,000 on order, signaling an important future revenue stream for the group.
Initial airline reactions have been diverse as some, such as Norwegian Air, may be demanding compensation and others, such as Garuda Indonesia, might cancel orders. In the meantime, VietJet has decided to wait for the results of the investigation. Kenya Airways has hinted a possible switch to the planes of the rival manufacturer Airbus (OTCMKTS:EADSY).
This aircraft’s main selling point has so far been the powerful, fuel-saving engines as well as the automated tools and software. However, insiders are wondering if the sophisticated software might somehow be behind the Boeing 737 Max accidents.
On Mar. 17, rather shocking headlines claimed that pilots had only received short training on iPads to prepare for using the sophisticated software and systems. Furthermore, the U.S. Department of Transportation (DOT) has launched a probe into the FAA’s approval of the aircraft. In other words, Boeing stock is likely to stay in the news for the wrong reasons in the coming weeks.
Although the full impact of the crash on the number of 737 Max orders and Boeing’s balance sheet will take some time to unfold, the combination of the two fatal crashes has become a public nightmare for BA. Various negotiations for orders or compensation levels between the company and airlines could easily hit Boeing’s earnings in the spring or summer months.
Revenue growth and robust margins have always been a driver behind BA’s stock price. Therefore, if the company were to issue a revenue warning in the coming weeks, investors may simply throw in the towel for now.
Short-Term Technical Analysis: After this month’s brutal sell-off, Boeing stock has suffered from a damaging technical picture and the trend has turned down. The stock may trade sideways for several days, only to continue the pullback toward the low-$320’s level, where the stock is likely to find major support.
Investors who pay attention to short-term moving averages and oscillators should note that BA’s technical message is also a “sell.” Further selling pressure might simply happen due to either broader market issues, say regarding U.S.-China trade wars, or more specifically due to Boeing issuing a negative investor alert as a result of the accident.
If you are looking for an entry signal to buy BA shares, from a technical chart perspective, I am not expecting the stock to make a significant leg up any time soon. BA stock will need to stabilize and build a base again before a long-term sustained leg up can occur. Expect nearer-term trading in Boeing stock to be choppy at best.
Around the $325 level, long-term investors may consider buying the dip, with the appreciation that they are likely to be rewarded in the next three to four years. Meanwhile, they can continue to collect dividend income with a current yield of 2.2%.
The Bottom Line on Boeing Stock
Stocks suffer during times of uncertainty and the concern regarding the safety of Boeing’s 737 Max planes offers plenty of questions. If, for example, Boeing is found to be at fault regarding pilot training or if the company cannot fix the service or hardware problems rather fast, BA stock will suffer further. Boeing has to also rebuild passenger confidence.
If you are planning on investing in the Boeing stock, you may want to wait for the release of the crash report as well as BA’s next quarterly statement on April 24 to re-evaluate the balance sheet.
As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.
