The news has been bad for Boeing (NYSE:BA) and the chart looks ugly. Which means it may be time to get in. Boeing has been making negative headlines ever since one of its new 737 MAX jets crashed in Ethiopia in March. It was the second such crash in six months.
Now airline executives are calling the industry itself traumatized. They’re having to cancel flights. Big orders are being lost. A Norwegian MAX was denied entry into German airspace this week, landing in Paris instead. People dreaming of bratwurst are being given crepes instead.
Analysts, often the last to react to anything, are now sending out bearish notes. Investors are being warned away. The stock has fallen 20% since March 1.
All this tells me it may be time to buy.
The Bull Case for BA Stock
At its current price of around $352 per share, Boeing is selling for around 20 times last year’s earnings and its dividend was yielding 2.4%. That’s as cheap as it has been in years. The stock has more than tripled in price over the last five years.
Boeing operations aren’t slowing down, because Boeing has a huge backlog of orders. Despite the scandal it still beat rival Airbus SE (OTCMKTS:EADSY) on orders for the first quarter.
One big reason for that is its military contracts. Boeing is the second-largest military contractor in the world. It got $13.7 billion of contracts in one month recently. As the world gets its war on, this is a significant tailwind.
Boeing brings in 31 cents of profit for each dollar of capital deployed, which is huge. The company is expecting earnings of $1.81 per share on revenue of $21.57 billion when it reports July 24. Even with its latest fall the stock is up 163% over the last five years.
Boeing’s Bear Case
The bears do have a case.
The case starts with Boeing’s reaction to the scandal. It seems an example of what not to do. Blaming pilots before collecting all the evidence rankles.
CEO Dennis Muilenburg has apologized to those who lost loved ones in the two crashes. But to many people they look like crocodile tears. Analysts are looking to the company’s board to provide leadership but, so far, it seems dug-in on behalf of management.
Flyers also now hate the 737 MAX, Boeing’s best-selling jet. They want to see it fly safely for six months, with other people on it, before they say they’ll get in one. Some airlines want Boeing to pay for their grounding of the aircraft.
Boeing’s recent order woes are so bad they’re impacting the whole nation’s durable goods numbers. Lawyers are lining up the class-action suits over the stock’s fall. The maiden flight of its 777X was delayed, although its General Electric (NYSE:GE) engines are being blamed.
The Bottom Line
If Boeing made cars or refrigerators, a scandal like the one involving its best-selling product would be ruinous.
But Boeing makes airplanes. Few companies make airplanes. Even with all the cancellations and two months without orders Boeing had a backlog of 5,582 planes at the end of April.
This means Boeing has time to deal with the 737 MAX. With almost $8 billion in cash and short-term investments on the books, it can handle the pain. The rest of the company is doing well. Military orders continue to come in on an almost daily basis.
Down $90 per share from its high, it looks like the patience of an income investor will be rewarded if they pull the trigger on Boeing stock today.
Dana Blankenhorn is a financial and technology journalist. He is the author of the mystery thriller, The Reluctant Detective Finds Her Family, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
