In 2019 Boeing (NYSE:BA) stock stalled out but didn’t crash. In the last year shares in the Chicago-based aircraft maker and defense contractor are down just 6%.
Given the problems with the 737 Max, which eventually led to the firing of CEO Dennis Muilenberg, that’s not terrible.
Except when you consider that Airbus (OTCMKTS:EADSY), its competitor in making jet airplanes, is up 41% in the last year, and that defense contractor Lockheed Martin (NYSE:LMT) is up 54%. There is such a thing as opportunity cost.
Or, consider what has happened to Boeing’s best customers. Southwest Airlines (NYSE:LUV) is up just 11% in the last year. Rival Delta Air Lines (NYSE:DAL), less reliant on Boeing’s planes, is up almost 30%.
A loss of trust is clouding Boeing’s 2020 forecast.
Is this really, as many analysts still insist, a buying opportunity?
The last decade has seen some of the greatest names in American business fall because of management arrogance and director cupidity. Investors in Hewlett Packard (NYSE:HPE), General Electric (NYSE:GE) and Wells Fargo (NYSE:WFC) have all taken huge hits because analysts and boards trusted their CEOs.
But when there is smoke at a great American company there is often fire. In the case of Boeing, management consistently ignored warnings about the 737 Max. One employee wrote that the plane was “designed by clowns” and “supervised by monkeys.” Even as late as December, Boeing was still finding new issues.
Treasury Secretary Steven Mnuchin now says that, if U.S. growth falters in 2020, a lot of the blame goes to Boeing. It is continuing to lose orders and Airbus is delivering twice as many jets. So far $8.1 billion in Boeing orders have been canceled.
The problems are deeper than the 737 Max.
Boeing looks set to lose the race to send astronauts into space to a startup, SpaceX. Boeing’s Starliner spacecraft continues to report anomalies and its design is decades out of date. All this is the result of a short-term focus that ignored serious engineering problems.
The new CEO, David Calhoun, has been on the Boeing board for 10 years. He previously did corporate makeovers at Nielsen (NYSE:NLSN) and Caterpillar (NYSE:CAT). Calhoun was a senior managing director at the Blackstone Group (NYSE:BX) but spent his early career at General Electric’s aviation business. He talks about listening to customers and regulators.
The better question is whether he will listen to employees who deliver bad news. Calhoun needs to get rid of the yes-men and promote people who not only know their stuff but are honest about what they don’t know. This means turning over the board of directors as well.
That doesn’t sound like a short-term fix.
The Bottom Line on BA Stock
Boeing’s current crisis, like those at the other companies that failed in the last decade, didn’t happen all at once. Some say it began two decades ago, when Boeing acquired McDonnell Douglas, once its chief American rival in the jet business.
At its Jan. 16 opening price of $331.05, a market capitalization of $186 billion, BA stock is still selling for twice its sales. It’s held up by an $8.22 per year dividend, yielding 2.5%. A big loss booked for the second quarter means it will come nowhere near matching that dividend with earnings.
There was still nearly $8.5 billion cash on the books in September, and the company had plans to buy more debt. But the rating on that debt could soon drop, making it more expensive. Its largest supplier just laid off 2,800 people.
If you’re buying BA stock to bet on a turnaround, you’re in it too soon, and you may be paying too much. Calhoun may pull the plane out of its dive, but it won’t happen right away.
Dana Blankenhorn is a financial and technology journalist. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.