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This Is Why You Should Steer Clear of BA Stock Before Earnings

So far, 2020 has been a difficult year for investors in Boeing (NYSE:BA) stock. Year-to-date, BA stock is down about 53%.

This Is Why You Should Steer Clear of BA Stock Before Earnings

Source: Alex JW Robinson /

Back in January, shareholders were getting hopeful that the company might possibly be recovering from the aftershocks of the two fatal 737 Max 8 crashes of 2018 and 2019, but then in March, the COVID-19 pandemic hit our shores. In a matter of weeks, it has severely affected tourism, air travel and the aviation industry.

And we do not yet know when air travel, especially international travel, may start fully again, not just in the U.S. but worldwide, too.

So is this a good time to buy into the shares of the world’s largest aerospace company? Boeing is expected to report earnings on April 29. If you are not yet a shareholder, you may want to analyze the metrics first. Long-term investors with a 2-3 year horizon may consider investing in BA stock if it declines further, especially toward $130 or below.

The Pandemic and BA Stock

In early March, in addition to the headlines regarding the uncertainty from the pandemic, oil prices took the world by surprise. As a price war between Russia and Saudi Arabia erupted, oil prices plunged to lows not seen since 2002. And the fall and the volatility also hit broader stock markets, including Boeing shares, hard.

Boeing is our biggest manufacturing exporter, offering commercial planes, defense systems, software and services. After Lockheed Martin (NYSE:LMT), it is also the second-largest defense contractor in the world based on revenue.

Needless to say, Boeing’s business and outlook for the rest of the year has been deeply impacted by the developments on the health and economic front. In March, it ceased manufacturing operations at its Seattle-area plants. It has also suspended dividends.

Recently, Boeing management has also said that customers have canceled 150 of the 737 Max planes. In comparison, during the last quarter of 2019, it had delivered  79 airplanes.

In mid-March, President Trump said “I think we have to protect Boeing … We have to absolutely help Boeing.” On March 27, he signed the legislation, called the CARES Act, that will provide over $2 trillion in stimulus to the U.S. economy.

Although Boeing is not specifically mentioned in the aid package, the bill sets aside $17 billion for “businesses critical to maintaining the national security.” However, at this point we do not have the full details of a potential bailout for Boeing.

As various states decide on what may be the best timeline to open up for business, on April 16, Boeing said that its factories in Washington state would resume production in the next few days. It will be taking several measures to ensure safety and hygiene protocol.

On March 18, BA stock saw a 52-week low of $89. Now it is hovering at around $152. It is likely that a potential rescue deal has already been factored into the recent increase in price.

What to Expect From Q1 Earnings

The group is expected to report the next quarterly earnings in a few days.

When Boeing released Q4 and full-year 2019 earnings in late January, quarterly revenue came at $17.9 billion. Q4 GAAP loss per share was $1.79, primarily reflecting the impacts of the 737 MAX grounding that followed the two fatal accidents. On an annual basis, it was the firm’s first yearly loss since 1997.

The aviation giant reports revenue in three segments:

  • Commercial Airplanes (about 41% of revenue);
  • Defense, Space & Security (about 33% of revenue);
  • Global Services (about 26% of revenue).

Investors will likely analyze each segment closely in the upcoming results. Revenue growth and robust margins have always been a driver behind the Boeing stock price. However, it is now facing important cross-currents.

The unexpected and unprecedented decline in air travel levels will adversely affect its revenue, profit, and cash flow. And they will likely drag on the earnings as well as the outlook for the rest of the year.

If you already own the shares, you may want to wait and ride out the choppy waters. Alternatively, you may consider initiating an ATM covered call position, for example, with a two-month horizon. A June 19-expiry covered call would decrease the volatility in your portfolio, offer some downside protection and also enable you to participate in a potential up move.

The Bottom Line on Boeing Stock

The health and financial ramifications of the COVID-19 outbreak have been serious. And for billions of people around the world as well as for the aviation industry it means continued question marks as to when air travel can resume fully.

Boeing is no ordinary company. It has an undeniable importance to our economy and the aviation sector. It may even be correct to say that its prospects reflect the strength of the U.S. economy. Therefore, I would not bet against BA stock price in the long run. However, I would be ready to embrace more volatility, possibly with a downward bias in the coming weeks.

Without 20/20 foresight, Boeing or most other businesses cannot know how the rest of 2020 will evolve. Therefore, investors may want to err on the side of caution.

Finally, those investors who would like some Boeing exposure but are nervous about the prospects for the year may consider buying into an exchange-traded fund (ETF) that has BA stock as a holding. Examples such ETFs would include the Industrial Select Sector SPDR Fund (NYSEARCA:XLI), the SPDR Dow Jones ETF (NYSEARCA:DIA) or the Vanguard Industrials ETF (NYSEARCA:VIS).

Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.

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