<p>To put it mildly, the Boeing (NYSE: BA) stock is a troubling proposition full of belly volatility. The aviation industry traded about $ 390 in September. At its last month, Boeing had a $ 89 handle, making the 64% rally since then impressive, if not incomprehensible.
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Shares in the Dow Jones Industrial Average component are up 17.7% in the past month, a period including the worst news, something that Boeing usually delivers. It is actually fair to say that Boeing is an “event-driven” stock, but the events that drive this capital are rarely positive. Case in point: Earlier this week, the company said it delivered 50 commercial aircraft during the first quarter.
Overall, it can be seen as impressive, but it is not for several reasons. First, partly due to scrapped production of the 737, only five of Boeing’s bread-and-butter aircraft were delivered during the first quarter. Second, during the same timeframe last year, the company brought 149 new passenger jet pilots to customers.
In addition, Boeing is facing a number of other headwinds, including a commercial aviation industry that could be irreversibly changed by the new coronavirus pandemic and an increasingly steady stream of poor economic data. As history shows, recessions and deep market recalls are usually unfriendly to cyclical industrial stocks, especially those of lower quality. Boeing controls all of these boxes.
Cash and culture for Boeing warehouses
One of the great revelations in the wake of not one, but two tragedies involving Boeing’s 737 Max-jet is that the company has cultural issues, which were revealed when the company struggled to keep the plane in the air and was probably one of the reasons Dennis Muilenburg was fired from the executive the role of director at the end of 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 of its marking products fall by two-thirds in a year.
All of these not-so-nice things also get a company to the point where it’s considering receiving help from Uncle Sam. But the new Boeing CEO David Calhoun mocks the idea of giving up capital to raise federal funds, which apparently exploits his company’s status too great to fail. No, Boeing will not go bankrupt and it actually has a lot of money to survive, even at current burning speeds, which is significant.
“While Boeing’s near-temporary free cash flow is likely to be significant, CapIQ’s median consensus 2020 free cash flow of $ 6.3 billion is much less than the $ 13.8 billion credit it downgraded earlier this month,” Morningstar wrote analyst Burkett Huey. “Separately, Boeing has access to billions in other open credit lines and had $ 10 billion in cash and short-term investments in the balance sheet at the end of 2019, but approximately $ 4.2 billion of this has been invested in a joint venture with Embraer. ”
The conclusion on Boeing Stock
Boeing does not lack positive things. The backlog of its 777, 777X and 787 aircraft is solid, indicating that there is an appetite for its goods and its defense and aftermarket service units together account for over a third of total revenue. Boeing’s defense exposure may provide some buffer for Boeing’s stock later this year if flight and defense names are praised in the re-election of President Trump.
Big questions still remain – the types that make Boeing far from a “purchase”. These include when 737 Max will be certified by regulators to re-transport passengers again and if so, what will the aviation industry look like at that time and will airlines even want to buy the aircraft?
There are many variables that Boeing does not show much ability to solve.
Todd Shriber has been an InvestorPlace contributor since 2014. At the time of writing, he had no position in any of the above securities.