To put it mildly, Boeing (NYSE:BA) stock is a vexing proposition full of stomach-churning volatility. The aerospace company traded around $390 in September. At its nadir last month, Boeing sported an $89 handle, making its 64% rally since then impressive, if not incomprehensible.
Shares of Dow Jones Industrial Average component are higher by 17.7% over the past month, a period including mostly bad news, something Boeing habitually delivers. Indeed, it’s fair to say Boeing is an “event-driven” stock, but the events driving this equity are rarely positive. Case and point: earlier this week the company said it delivered 50 commercial planes in the first quarter.
All things considered, that may be viewed as an impressive, but it’s not for multiple reasons. First, due in part to basically scrapped production of the 737, just five of Boeing’s bread-and-butter airliners were delivered in first quarter. Second, in the same time frame last year, the company brought 149 new passenger jets to customers.
Additionally, Boeing faces an array of other headwinds, including a commercial airline industry that could be irrevocably altered by the novel coronavirus pandemic and an increasingly steady stream of poor economic data. As history proves, recessions and deep market pullbacks are usually unkind to cyclical industrial stocks, particularly those of lower quality. Boeing checks all those boxes.
Cash and Culture for Boeing Stock
One of the big revelations in the wake of not one, but two tragedies involving Boeing’s 737 Max jet is that the company has culture issues, which were exposed as the company fought to keep the plane in the skies and were probably one of the reason’s for Dennis Muilenburg’s ouster from the chief executive officer role late last year.
Bad culture gets a stock to a place where it needs to more than double to return its 52-week high, to a place where its dividend is eliminated and to a place where a company’s deliveries of some its marquee products plunge by two-thirds in a year.
All those not-so-pleasantries also get a company to the point where it’s mulling accepting assistance from Uncle Sam. However, new Boeing CEO David Calhoun scoffs at the notion of giving up equity to procure federal funds, apparently leveraging his company’s too-big-to-fail status. No, Boeing won’t be going bankrupt and it actually has plenty of cash to survive, even at current burn rates, which are significant.
“While Boeing’s near-term free cash flow burn is likely to be substantial, CapIQ’s median consensus 2020 free cash flow burn of $6.3 billion is much smaller than the $13.8 billion line of credit it drew down earlier this month,” Morningstar analyst Burkett Huey wrote. “Separately, Boeing has access to billions in other open lines of credit and had $10 billion in cash and short term investments on the balance sheet as of the end of 2019, though about $4.2 billion of this is sequestered for a joint venture with Embraer.”
The Bottom Line on Boeing Stock
Boeing isn’t bereft of positives. Backlogs for its 777, 777X, and 787 aircraft are solid, indicating there’s appetite for its wares and its defense and aftermarket servicing units combine for over a third of total revenue. Boeing’s defense exposure could provide some buffer for Boeing stock later this year if aerospace and defense names price in re-election for President Trump.
Still, big questions linger – the types that make Boeing far from a “buy.” Those include when the 737 Max will be recertified by regulators to again carry passengers again and if is, what is the airline industry going to look like at that point and will carriers even want to buy that aircraft?
Those are a lot variables Boeing isn’t showing much ability to solve.
Todd Shriber has been an InvestorPlace contributor since 2014. As of this writing, he did not hold a position in any of the aforementioned securities.
