Keep Your Long-Term Expectations Low With Boeing

The success of iconic aerospace and defense giant Boeing (NYSE:BA) depends on a number of factors, not the least of which is travel demand. Judging by the recent price action of Boeing stock, one might be lulled into a sense of complacency or even euphoria.

Image of Boeing (BA) airplane in a hanger.

Source: Alex JW Robinson /

Without a doubt, a contributing factor to the risk-on sentiment is the recent progress in the global effort to discover a novel coronavirus vaccine and get it approved.

In this regard, positive news came from the likes of Pfizer (NYSE:PFE) and BioNTech SE (NASDAQ:BNTX) as well as Moderna (NASDAQ:MRNA). With that, there was a spillover effect as traders bid up the Boeing stock price.

I’m not completely against owning shares of Boeing stock. It’s entirely possible that the stock price will achieve its pre-pandemic peak. Nevertheless, this is no time to throw caution to the wind and over-invest in Boeing shares.

A Closer Look at Boeing Stock

The first issue I’d like to point out is that Boeing stock has trailing 12-month earnings per share of -$7.89. I suppose that’s not horrendously bad for a stock that’s over $200.

Still, negative earnings are a concern. It would be comforting to see that number turn positive. Until that happens, it probably wouldn’t be wise to add to one’s position in Boeing stock.

On the flip side, at least we can say that the bulls are in control of the price action. From mid-June through October, Boeing stock went absolutely nowhere. I suspect that some folks exited the trade just out of boredom.

That’s a shame, since Boeing stock popped $150 to $210 in November. By Dec. 4, the stock broke through the $230 level. Eventually, the bulls might target the pre-pandemic pinnacle of around $350. All that being said, there are still reasons not to accumulate the shares now.

A Downbeat Prediction

Before the Boeing stock bulls get ahead of themselves, it’s important to note that Boeing expectations for the coming decade are rather muted, to put it mildly.

More specifically, Boeing projected that during the next 10 years, the world’s airlines will only need 18,350 planes, with an estimated total value of $2.9 trillion.

I say “only” because this represents a jarring 11% compared to Boeing’s forecast from a year ago. Moreover, Boeing predicts that 43,110 airplanes will be delivered in total from 2020 to 2039.

This indicates a decline compared to last year’s comparable-time-span prediction, in which Boeing envisioned 44,040 planes being delivered through 2038.

In other words, just because Covid-19 vaccine candidates are in development, this doesn’t necessarily mean that the airplane manufacturing industry will return to previous levels anytime soon.

Desperate to Raise Capital

Even in the near term, the outlook might not be sunny for Boeing. CFO Greg Smith has admitted that since the Boeing’s third-quarter earnings call in October, the company has reduced its outlook for 787 jet airliner production from six per month in mid-2021 to five.

As far as the Boeing 737 Max is concerned, orders for that model have declined by more than 1,040 this year.

“[W]e’ve got to get this debt balance down,”Smith said recently, adding to shareholders’ concerns. “And we’ll look at every opportunity to do that in the most efficient way, including equity.”

Thus, it appears that Boeing is open to a stock sale. That’s not great news for folks who already own Boeing shares. Printing up more of the stock shares could have a dilutive effect on the price.

There’s no free lunch in the markets, and unfortunately, using an equity offering to pay down Boeing’s debt could end up punishing the company’s current stakeholders.

The Bottom Line

Don’t get me wrong. It’s heartening to hear of the drugmakers’ progress in the fight against the coronavirus pandemic.

Over the long term, however, Boeing still has an uphill battle to fight. And for folks who already own Boeing stock, the possibility of an equity offering shouldn’t provide much solace.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.

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