Is the Bad News Already Baked into Boeing Stock? Maybe

If there was a competition for accumulation of bad news among large-cap names last year, Boeing (NYSE:BA) stock would have been the winner of that dubious distinction.

Is the Bad News Already Baked into Boeing Stock? Maybe
Source: Alex JW Robinson /

It wasn’t just issues surrounding the 737 Max jet that stymied Boeing stock last year, though that was the primary reason. There were derivative woes, including internal cultural problems that became apparent as the year went along, leading to Dennis Muilenburg’s ouster as chief executive officer in December.

The 737 Max was the passenger jet involved in two now infamous incidents – the October 2018 Lion Air and March 2019 Ethiopian Airlines tragedies. Combined, hundreds of lives were lost in those accidents. That’s what’s important, but in the months following those tragedies Muilenberg and team didn’t do the best job of handling the crisis, which then had an adverse impact on the jet maker internally and its investors as well.

Of course, now its 2020 and so is hindsight, so it’s clear missteps were made at the highest levels of Boeing following those accidents.

Harvard Business School draws an interesting comparison between the aircraft maker’s handling of the Boeing 737 Max crash to how Johnson & Johnson (NYSE:JNJ) dealt with the Tylenol poisoning crisis back in 1982. Long story short, James Burke, JNJ CEO at the time, had Tylenol pulled from all store shelves, setting in “motion all the activities we now associate with J&J’s gold-standard reaction to a crisis in which human lives are at stake,” according to Harvard’s Sandra Sucher.

On the other hand, Dennis Muilenburg insisted the 737 Max was safe and the initial batch of groundings of the jet didn’t come by way of Boeing. They were opted into by airlines.

Hard to Ignore

This year is still in its early innings, but it is getting hard to ignore the fact Boeing stock, the largest component in the Dow Jones Industrial Average, is higher by 5.2% — versus 1.3% for the gauge — over the past month.

Over that period, it has become evident that Boeing’s lost production will put a significant dent in U.S. first-quarter GDP. If that fact doesn’t grab you, maybe this one will: Boeing didn’t deliver a single plane last month. Zero. Zilch. Nada. That’s the first time that’s happened to Boeing in the first month of the year since January 1962.

The company isn’t waiting for the Federal Aviation Administration (FAA) to restart production of the controversial plane, but it does need FAA approval prior to putting the 737 Max back into service. Previously, it was hoped Boeing could get the plane back into the skies by late last year, but that agenda was scrapped following the production halt.

Current expectations indicate the plane can return to service in July, a forecast floated about in January, meaning Boeing has six months to show the FAA it has got things right with the 737 Max. If May or June rolls around and another delay hits, that would likely be bad news for Boeing stock.

Boeing Stock Still has Some Bulls in Its Corner

With just 30% of analysts covering Boeing rating it the equivalent of a “buy” or stronger, it may appear difficult to find supporters of the aerospace giant, but they do exist.

Benchmark analyst Josh Sullivan recently went out on the proverbial limb, putting a “buy” rating on Boeing with a $375 price target, implying upside of more than 10% from current levels.

What will chart the course for Boeing stock this year is the company’s ability to surprise, or least make good on the aforementioned 737 Max timeline.

“We anticipate that the MAX will receive an airworthiness directive sometime in the second or third quarter of 2020, and we expect that this event is more likely to occur sooner rather than later,”Morningstar recently wrote. We also expect that Boeing will be able to ramp up production after recertification without requiring capital expenditure beyond historical norms.”

As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.

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