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Mark Yu
Mark Yu
Articles (397)  | Author's Website |

Boeing Is Presenting an Opportunity

The aerospace company is experiencing turbulence

March 14, 2019 | About:

At this point, 51 countries have taken the wings off of Boeing Co.’s (NYSE:BA) 737 Max aircraft following the Ethiopian Airlines crash.

For safety reasons, Boeing also announced it recommends this action. Investigations have yet to conclude if the Boeing 737 Max 8 is at fault as a similar aircraft was also involved in last year’s Lion Air crash.

The 737 has been the aerospace company’s largest delivery in recent years.

Boeing's 737 product line includes the 737 Max 7, 8, 9 and 10. In 2018 alone, Boeing 737s represented nearly 72% of its deliveries. The 737 program also has the largest number of undelivered units that have had firm orders from customers, followed by Boeing 787s. There are 4,636 orders that are yet to be delivered and the 737 Max accounts for at least a third of Boeing’s revenue.

As a result, investors should worry about the future impact on Boeing’s financials until 737s are again allowed to resume their corresponding flights.

Shares of Boeing are down nearly 12% since the Ethiopian plane crash.

Despite the souring mood on Boeing shares, it is important to remember this is not the first time the company has faced grounding of its aircraft. Back in 2013, Boeing 787 Dreamliners were grounded because of fire safety concerns and these aircraft are still being manufactured and delivered today.

Being the world's largest aerospace company, Boeing appears to have the wherewithal to overcome the present difficulties.

Analysts are confident in the company’s cash situation and were already expecting Boeing to eventually halt its deliveries but still keep building 737s and hold the aircraft in inventory prior to today’s announcement.

Grossly shaving about 10% of average analyst revenue expectations for 2019—assuming Boeing encounters delayed revenue recognition because of its delivery pause—would provide a figure of $300 a share when multiplied with the stock’s three-year price-sales multiple. This is markedly lower than Wall Street's estimate of $456. Today’s share price of $373 falls between the two.

There is no doubt Boeing will be able to carry on beyond the present turbulence in its long flight.

Disclosure: Long Boeing.

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About the author:

Mark Yu
A doctor in physical therapy (DPT) with a passion for finance. Not a registered financial analyst. Value seeker. Long only. Global investing. Long-term investing.

Attempts to dissect company filings per day. Dislikes goodwill and intangible assets.

For quicker reading--jump ahead to an article's conclusion.

One company (review) a day keeps the speculation (hopefully) away.

Would typically invest $500 to $3000 of own money per buy recommendation.

"The only source of knowledge is experience"

"I have no special talent. I am only passionately curious." Albert Einstein

"To strive, to seek, to find, and not to yield." Alfred, Lord Tennyson

"We find one a year, that's terrific. You do not need a hundred or a thousand great investment ideas to do well. You need a couple. And, the discipline is the most important thing." Warren Buffett

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Comments

batbeer2
Batbeer2 premium member - 1 week ago

>> There is no doubt Boeing will be able to carry on beyond the present turbulence in its long flight.

Yes, I would bet significant money that Boeing will be building planes in 10 years.

BUT

At what cost to shareholders? The undisputed facts are that Boeing has had existential problems for the last two planes it has introduced. They fixed the first one (787) and will certainly fix this too but the real question is why they couldn't get it right first time.

Some tech stuff....

The 737 has short landing gear. This is a deliberate design feature. You can get luggage in and out easily at any airport with basic equipment. This is why low-cost carriers like the 737. They use them to fly to secondary airports. However, this is also an old design and engines are getting larger as they get more efficient. You'll notice the flat bit at the bottom of the engines of all modern 737s. They had to squash the bottom of the engine because it wouldn't fit under the wing.

So now the max 8 has even larger engines. They repositioned them a bit further to the front of the plane so they could hang them higher relative to the wing. But this has a significant impact on the flight characteristics of the plane. Boeing introduced some software so the plane would "simulate" the way the old design flew. That's a hack/shortcut so they wouldn't have to retrain the pilots.

Now if there's even a hint of an issue with that, then that's a major problem! It's not like a battery catching fire that you can swap out. At best this will require extra training for all those pilots. Low-cost operators won't like that. It does not matter if this is what caused the crash in Ethiopia. If pilots start complaining about how the new plane tends to behave differently under extreme conditions then this is going to be hugely expensive for Boeing.

Airlines are going to argue that the new 737 is not doing what Boeing promised and that's going to be expensive.

I don't have a horse in this race (just watching from the sidelines) but I think this is likely to get very ugly for Boeing before it gets better.

Just some thoughts, thanks for the article.

watch this: https://www.youtube.com/watch?v=3jGNn2T_gyU

Mark Yu
Mark Yu - 1 week ago    Report SPAM

In terms of duration, Bank of America expects Boeing will take three to six months for this specific problem to be fixed. And the retraining of pilots does seem a more immediate concern than what I had initially thought. I expect Boeing to resolve this technical issue at all cost for the benefit of not only the company's but also for everybody. Thank you for sharing your thoughts @Batbeer2.

Valuator
Valuator - 1 week ago    Report SPAM

Too expensive.

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