I can’t think of a more embattled company in recent memory than Boeing (NYSE:BA). Typically, when the U.S. President labels your organization as “disappointing,” it hurts no matter what you think of the administration. But for Boeing stock, it’s much worse. With the underlying aerospace firm being the manufacturer of Air Force One, getting blasted by the Commander-in-Chief is unfathomably bleak.
But in all fairness to President Donald Trump, he’s not wrong. As you know, Boeing landed in hot water after two of its jetliners crashed, resulting in hundreds of deaths. After a series of denials and obfuscations, management later confirmed what crash investigators discovered: a faulty stabilization system contributed to the fatal incidents.
Moreover, the plane in question, the 737 Max, represents Boeing’s best-selling aircraft. In fact, the company has a backlog of over 4,000 of this jetliner. And in a recent announcement, the manufacturer basically suggested that the backlog will worsen.
Executives told the firm’s suppliers and clients that “it doesn’t foresee regulators lifting a flight ban on the 737 Max until June or July, months later than originally expected.” Naturally, Wall Street punished Boeing stock sharply on the dour disclosure.
If that wasn’t bad enough press, Treasury Secretary Steven Mnuchin stated earlier this month that the 737 Max problems could slow our country’s economic growth by a half point this year.
Because of the flight ban extension along with internal chaos at Boeing, many analysts are expecting disastrous results for the upcoming fourth quarter of 2019 earnings report. Based on the litany of troubles, I can understand the fear toward Boeing stock.
Should investors throw in the towel on this possibly impending train wreck?
Pessimistic Consensus for Boeing Stock
On the print prior to the latest announcement, analysts’ consensus target for earnings per share in Q4 was $1.51. Technically, that was near the upper end of estimates, which ranged from 95 cents to $1.91. However, an updated assessment now calls for a severely downgraded EPS of 73 cents.
Either way, the optics against the prior year Q4 EPS of $5.48 was always going to be ugly.
On the revenue front, analysts are targeting a consensus haul of $21.2 billion. Estimates range from $19.1 billion to $22.4 billion. As with earnings, Boeing stock faces extremely ugly comparisons. In the year-ago quarter, the airplane manufacturer rang up $28.3 billion.
With all the ugly PR, I can’t imagine the upcoming Q4 report will go down well. Additionally, Boeing’s woes are obviously not exclusively limited to the iconic organization. For example, General Electric (NYSE:GE) provides the engines for the embattled 737 Max. As the aviation unit is one of very few bright spots for GE, the Max is pivotal for GE’s recovery.
As well, you have Boeing rival Airbus (OTCMKTS:EADSY) enjoying strong demand for its A320 and A321 series of jetliners. Factor in that airliners such as United Airlines (NASDAQ:UAL), Southwest Airlines (NYSE:LUV), and American Airlines (NASDAQ:AAL) are anticipating that the Max will miss out on another summer season and you realize that Boeing has a huge credibility crisis.
But just how badly will Boeing stock drop when the report does? I think the signals are ambiguous. While the environment is obviously terrible, the bad news is already known. Now, we’re just getting into the numbers.
Moreover, Boeing has already admitted to mistakes contributing to the two fatal crashes. Nothing’s worse than that yet shares have tread water relatively well.
Potential Opportunities on the Table
Ultimately, you’ve got to imagine that once Boeing releases their awful numbers for Q4, its equity price will see red. How much of it, though, is anyone’s guess.
But despite the recent and unfortunate news, I’m still cautiously optimistic about Boeing stock. When the Max crisis first unraveled, for instance, shares took a hit but it wasn’t catastrophic, all things considered. This is a giant blue chip and it might take a little bit more to take it down.
And even if shares tank, the broader fundamentals are nevertheless positive. Although most of Boeing’s revenue stream come from commercial sources, it does have viable defense business units. That could see renewed interest due to various geopolitical conflicts.
Also, the company’s space division is suddenly more relevant than it arguably ever has. For one thing, the Trump administration announced the creation of the sixth military branch, the Space Force. Plus, Japanese Prime Minister Shinzo Abe introduced his country’s own space defense unit. Interestingly, it will work closely with its American counterpart.
While you don’t want to get overly excited about this development, it still offers a potential long-term revenue channel. Once Boeing gets past its crisis – and it will because that’s what great organizations do – the outlook is surprisingly positive.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
