SHOULD YOU BUY BOEING STOCK
𝗜𝗦 𝗕𝗢𝗘𝗜𝗡𝗚 𝗥𝗘𝗔𝗗𝗬 𝗧𝗢 𝗧𝗔𝗞𝗘 𝗢𝗙𝗙? The stock is down 50% so far in 2020, so is it time to scoop up shares in the aerospace giant, wait a little longer or avoid all together?
𝗧𝗛𝗘 𝗦𝗧𝗢𝗥𝗬 𝗦𝗢 𝗙𝗔𝗥:
Boeing was hit hard in Q1 due to a combination of the pandemic and issues with the 737 MAX. The stock dropped as much as 75% as widespread panic took down the entire market. Boeing has since risen 50% from its low, however the stock has hugely lagged the rest of the market as the company remains at the centre of the struggling travel sector!
𝗪𝗛𝗬 𝗕𝗢𝗘𝗜𝗡𝗚 𝗜𝗦 𝗔 𝗟𝗢𝗡𝗚 𝗧𝗘𝗥𝗠 𝗕𝗨𝗬:
1) Air travel will eventually recover & long term fundamentals remain strong.
2) The worst case scenario (bankruptcy) looks unlikely since raising $25b through the bond market and they've cut staff by 10% to ease cash burn.
3) Biden will likely remove tariffs on China which should encourage the country to order more commercial planes from Boeing.
4) Boeing has a commercial airplane backlog of more than 4,300 aircraft which is valued at $313 billion.
5) Although deliveries have been put on hold, Boeing has continued with production so inventory is strong. When customers return, Boeing will be ready to fulfil deliveries faster than usual causing a sharp rebound in sales/revenue.
6) The 737 Max is beginning to gain approval around the world and deliveries are expected to resume in Q4 2020.
7) Defence, Space & Security accounts for 30% of Boeing's revenue. This portion of the business remains strong with Boeing recently winning contracts worth $5b with Nasa & the US army.
𝗥𝗘𝗔𝗦𝗢𝗡𝗦 𝗧𝗢 𝗔𝗩𝗢𝗜𝗗... 𝗙𝗢𝗥 𝗡𝗢𝗪:
1) Boeing is still burning through a lot of cash and management have said that they don't expect to return to profitability until late 2021 at the earliest.
2) Boeing now has 6x more debt than it did before the pandemic and it could be a while until Boeing returns to being a high dividend stock again.
3) In order for the share price to double (from $150), EPS would need to return to $16 per share presuming Boeing commands a PE ratio of 20 (their long term average). $16 is achievable but this could take a while!
Boeing is facing many issues over the next 6-12 months and therefore the stock may have further downside in the near term. However I think that the stock presents a good opportunity for long term investors. Travel will resume and when it does, 𝗕𝗢𝗘𝗜𝗡𝗚 𝗪𝗜𝗟𝗟 𝗧𝗔𝗞𝗘 𝗢𝗙𝗙.
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