Is Boeing Stock Too Big to Fail?
- Boeing’s stock dipped over the past year after a series of crashes grounded its 737 Max fleet.
- The once-formidable airline company is eyeing a comeback in 2020. I’ll show you whether it’s an effort to bank on or tank on in 2020.
- Earnings for Boeing are set to be released tomorrow. In my free How to Get Rich With Options course, you’ll discover how I trade options around earnings. Click here to check it out.
Last week, Boeing (NYSE: BA) announced airline regulators would likely not approve its 737 Max planes to fly until June or July.
It’s just the latest crisis to plague the aircraft maker since March 2019.
Following two accidents that killed 346 passengers last year, Boeing has struggled to regain the trust of industry regulators and customers.
It’s showing even larger signs of distress in 2020.
Boeing’s Renton, Washington, factory shuttered amid canceled orders.
And it’s ceding more ground to major competitors such as Lockheed Martin and Airbus.
Airbus has already ramped up production of its planes to meet demand from Boeing’s failures.
Many are wondering if these setbacks will ultimately doom the 103-year-old company to bankruptcy.
With new CEO Dave Calhoun guiding efforts to bring Boeing’s fleet back to the skies once more, this year will be the ultimate test for Boeing’s future.
In my latest Bank It or Tank It, I’ll let you know exactly where I see Boeing’s stock heading in 2020. I’ll also tell you why I’m not worried about the coronavirus’ impact on the broader stock market.
And make sure you check out my quick takes on six stocks near the end of the video. They include Advanced Micro Devices (Nasdaq: AMD), General Electric (NYSE: GE) and more.
You can learn more by watching the video below.
Will Boeing Bounce Back in 2020?
Boeing’s fortunes dipped throughout 2019. We may see an even larger drop over the next three years.
But as an options trader, I don’t have to look that far ahead.
The company is set to announce earnings later this week. That will spark a critical short-term move that we can capitalize on in the coming months … not years!
I’ve actually designed my own strategy that looks for a short-term pop of 5% or more in a stock.
By using options, you could turn these surges into a consistent source of income over the next year.
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Boeing: Bank It or Tank It | January 29, 2020
Today we’re breaking down a stock that I many of you have requested. We’re going to analyze Boeing.
We’re analyzing everything from the latest news and public sentiment to business fundamentals and the technical side of the company.
Ultimately, I will let you know how I feel about Boeing stock right now and what all these elements tell us investing in Boeing.
Scroll to the end of this post to the quick take section to see my latest 6 stock recommendations.
The Coronavirus And End of The World Panic
A lot’s been going on with Boeing and they’ve had some several big announcements.
Recent worldwide circumstances have also affected the aviation giant’s flight path.
First, determine if the Coronavirus is affecting stocks like Boeing and other airline stocks in the rest of the market. This is a broader subject that’s seemingly sparking panic all across the world.
It started in China. The Coronavirus is spreading. At first they didn’t think it was spread between humans.
Now it is.
All of a sudden it’s in the U.S. It’s on different continents and it’s a major worry on Wall Street.
But I just wanted to say that I don’t think this is really that big of a deal.
What’s really happening? Wall Street is taking profits right before we head into a strong earning season over the next few weeks.
The S&P 500 report earnings is what’s going to be driving stocks higher from here.
I just don’t see the Coronavirus really being even a medium term factor for the stock market.
The virus may have an impact from day to day, sending airline stocks or travel stocks lower, but it’s not going to have a lasting effect on the stock market.
It’s just something stealing the headlines at the moment.
Today’s News, Tomorrow’s History: Onto The Fed Meeting
The Federal Reserve announcement on Wednesday is going to reorient the market conversation back to keeping emphasis on lower interest rates.
Earning season is really going to steal the show this month.
Any weakness stemming from the Coronavirus is going to be an excellent buying opportunity for any stock on your bank it list.
I’m not saying to rush out and just buy anything.
Buy good solid stocks with great fundamentals, that look solid on price charts, and then you’ll be able to excel and benefit as we get a rebound out of the Coronavirus worries.
When the market is going through big sell offs, that’s a great opportunity to come in and buy.
This is not a fundamental sell off, it’s a fear based sell off which is good news for smart investors.
During a fear based sell off you can pick up a stocks that you’re ready to bank on in 2020.
Cloudy Skies Ahead For Aviation Giant Boeing?
I assume you’ve heard the news about Boeing? If not, I’ll give you the very brief version.
Boeing made planes that have trouble flying. The specific model is the Boeing 737 Max.
So far there have been two major crashes and a cargo plane load of issues. The aviation giant is pulling those planes off runways and back to their hangars to fix these issues.
That’s definitely the right move. But how will all Boeing’s issues affect their stock price?
Let’s take a look at Boeing’s key stats to determine their outlook in 2020, 2021 and 2022.
On this chart the net income is the burgundy color bars on the chart.
In the right is our measurement for net income which is expected to be negative in 2019.
What we’re seeing now is the negative effect of them not being able to sell their planes.
Which means a drop in net income and a decline in total revenue over this period as well.
But revenue is not going negative, of course. That’s the measurement on the left side of the chart above. You can just see it taking a sharp cut, about 20% from 2018 to 2019.
Here’s the key.
You can see that analysts covering the Boeing stock are expecting this major rebound in 2020.
They’re expecting Boeing to have these planes back out there in 2020 and that’s clearly reflected in their expectations.
That income’s supposed to jump positive. Total revenues are supposed to surge more than 20% and then continue strongly in 2021.
So to me when I look at this, this is a major risk to expectations for Boeing because we know what’s going on at Boeing, but I think it’s a major assumption to think that earnings and sales are just going to flip right back around as soon as they have this one plane fixed.
Because it’s not going to be that simple, right? There’s a big fear in the market for Boeing planes, specifically the ones that have been crashing and that are not operating properly.
They are doing their best to get those planes fixed, testing, new software updates, everything they can do get airborne again.
But I think this situation does really impact Boeing long term.
I’ve talked to long-term Boeing shareholders.
They are going to fly this bumpy sky with the company and hold out.
Why? Because Boeing shareholders believe that the Boeing think it’s too big to fail.
Boeing simply can’t fail.
We’re talking about one of the number one providers in airplanes across the world.
Airlines have already felt the Boeing backlash and turbulence where it counts, stock prices.
Fewer flights, cut backs and reroutes. This is especially true of airlines that rely heavily on Boeing.
I agree with shareholders. I think that Boeing is too big to fail.
Fundamentals: Boeing Too Big To Fail Or Too Heavy To Fly?
Too big to fail is a term that should send shivers down the spines of Main Street Americans.
In 2008, big banks had to get bailed out because they were too big to fail too, but it didn’t mean that their share price could not get absolutely clobbered along the way.
These stocks were down over 50% across the board. 60% ,70%, some 80% through that financial crisis.
So assuming Boeing’s going through its own crisis, when we get to the price charts, we’ll really be able to break this down.
But just because a company is too big to fail, doesn’t mean it can’t still get a major haircut in its share price, dropping 50% or 60% even from where it’s trading at today.
And that’s what I think some long-term shareholders don’t quite understand.
So let’s see how Boeing stacks up against competitors.
You can see some of the key competitors in the chart above like Lockheed Martin, United Technologies, Northrop Grumman, Raytheon. These companies are not necessarily as large as Boeing or even direct competitors, but they’re in a similar industry.
Boeing is the largest market cap and that’s why shareholders and analysts are using the term too big to fail.
It’s just simply a company that’s too large to fail, and I agree with that, but again that doesn’t mean that shares can’t plummet from here.
Now the short interest is minor, just 1.1%. That’s below the mean for these companies, so they’re fine there.
There’s not too much negative sentiment for the stock as far as short betters because they’re probably in the same mind frame as long-term investors.
This stock is simply too big to fail and any point that could get a bail out or some other support that makes it too much of a risk to short at this point.
And then we look at the price to earnings.
This is 47.8 which is way up there while the rest of these companies are at 23.6. But that really goes back to what we saw in the chart before.
The reason we are seeing a price to earnings ratio jump up for Boeing (making it a higher priced stock relative to the earnings) is because of net income dropping 20%.
Again, that’ll change in the next couple of years as these analysts expect income and revenues to really jump right back to where they were before the crisis.
And then when we look at total revenues and net income growth, compound annual growth rate over the last three years, Boeing’s negative.
When we looked at the charts, they were climbing steadily until 2019.
Then they took a sharp dip but that dropped, a 20% drop, which was enough to make them negative for that three-year period and that’s way off from the competitors there. A 9% growth rate and 12.5%.
Then when we come to dividend yield, this is another big argument for long-term shareholders, 2.6% versus 1.6% for some of the competitors.
So people that have been in Boeing for years now are just collecting a massive dividend check.
If you bought at 10 or 15 years ago, the yield is massive. Those are the people that are really looking to hold onto Boeing stocks.
Recently, Boeing came out and said that they’re going to support their dividend over this Max 737 crisis.
From a shorter term investor’s perspective, that’s one of the biggest mistakes that a company can make when they’re struggling.
They’re doing it as a show of confidence. They think that they’re going to be able to turn this around, and get the planes out sooner than I know their expecting, or at least at some point even maybe on time.
But that’s a major risk because what they’re really trying to enforce is these long-term shareholders that they’re going to maintain this dividend and don’t sell on as yet.
They want you to stay in there for that dividend.
But again, if you’re hanging on for the dividend and the stock is about to take another 20% or 30% drop, you’re still getting hammered.
Unless your timeframe is 15, 20 years ahead of you, then great hang on to it.
But if you’re uncertain about it, if maybe you need to sell these shares over the next couple of years, then hanging on for the dividend is not the right move.
I don’t want investors to get kind of caught up in the mindset that hey, Boeing’s confident. They think things are going to turn around.
I mean of course they’re confident. That’s how they have to be to run the company.
Of course, they want to turn things around. They’re trying to get anything out possible to get these planes back in the sky.
But the damage has already been done. The negative headlines, the negative press. It’s really going to slow down Boeing’s growth in the future, and other competitors are going to be able to step in and capitalize on that.
And I think that Boeing’s dividend is going to be at a major risk just over the next few months as they’re trying to roll out these planes. If they don’t get them back up in the air soon, they’re going to end up having to do something about their dividend.
And if you’re a long-term shareholder and then all of a sudden the stock drops another 20% or 30% and then guess what?
Then they cancel their dividend.
So you’re not going to get that dividend check and you’re also going to get hammered with the stock price falling.
So we don’t want to get caught up in holding onto a stock just for the dividend just because we think it’s too big to fail.
We want to look at the fundamentals and the core aspects of the company and look at those to figure out whether or not we want to hang onto this stock going forward.
Sentiment: What Analysts Are Saying About Boeing Stock
And right now it’s rated at a 2.7 which is a hold. So clearly, analysts aren’t sure about how to trade this stock.
This is out of 21 analysts according to S&P Capital IQ.
I love to see this tilted way over to the buyer, to the sale, because that gives you a clear consensus. Right now, analysts are not confident, so the sentiment for the stock is clearly not there.
They’re not bears, but they’re not bullish.
They’re basically in the middle of the road at 2.7. A one is a strong buy, a five is a strong sell.
Analysts are really uncertain about what’s going on with Boeing right now which really puts this into perspective.
Think about it, we have covered Boeing stock for years, we have access to everything from income statements to balance sheets. We know about all deals the company has ever made, the company backlogs, basically every intimate details of the business over decades.
These are analysts on Wall Street that have access to all the data that you can imagine in the world, and they still have no clue how to trade this stock.
Technical Analysis: Show Me The Money
This is my favorite part, the technicals.
We’re going to pull up a price chart of Boeing and on this chart it’s really going to be pretty simple today.
I only have a few things that I want to show you. And the first that we’ll look at as always is a 200-day simple moving average.
It’s in yellow on the chart.
We use this as a sentiment indicator and the price right now is clearly below where the 200 day moving average is.
And as a sentiment reading, if the stock is below the 200 day moving average, and the 200 day moving average is trending lower like you can see here, then that’s a bear sentiment indicator for the stock.
If the stock was above it and the moving average was rising, that would be a bullish sentiment indicator. So right now we’re getting a negative sentiment reading from the 200 day moving average.
And then you can look at this red resistance line across the top.
This is the key downtrend arrow. Keep an eye on going forward.
This is going to be a major point of resistance if the stock can manage a bounce here in early 2020.
But it’s really going against seeing a bounce at the moment because right below this we have the green support line, or at least it was a support line.
This pattern where the stock is bouncing between this new support line and these red resistance line creates a descending triangle pattern.
The breakout occurring around the bottom, around $320 a share that tells us that we can expect the stock to continue to go lower by roughly $70 a share, or about 20% lower from here.
That’s a massive drop that we’re looking to see in the next several weeks really.
We’re expecting the shares to drop to about $250 based on this descending triangle pattern that formed here towards the end of 2019.
And this is just a long-term support line that can hold this up a little bit. You can see it was tested back in 2018, and really was created before the breakout at the beginning of 2018.
But another key point to make when we zoom down on this chart is that the stock had really gone nowhere, absolutely nowhere, I mean down a little bit, but basically nowhere from January, 2018, to January, 2020. It is almost at the exact same spot.
The stock has really been consolidating over the last two years and that creates an idea of uncertainty for investors.
They really weren’t sure where the stock was headed. We can see it try to break out in early 2019 but then fail to do so with all the negative news, the negative headlines.
It collapsed and traded back down.
Now the breakdown is below this short term support area, the ascending triangle pattern breaking down below that gives us even more of a bearish indicator for the stock. But this green support line is going to be the key to watch.
So… Boeing: Bank it or Tank it?
So now we can take a look at the checklist for Boeing and run through the fundamentals, the sentiment in the technicals to figure out whether or not this is a stock that can bank on or tank in 2020.
And when we ran through the fundamentals, it didn’t look so great, at least in 2019. Analysts were expecting it to turn around in 2020 and 2021, but again, that was on some major assumptions that create a lot of uncertainty.
So just because of the drop that we saw in 2019 and that’s where the stock in the company currently stands. With dealing with this drop and they haven’t shown any promise of turning that around just yet.
This is going to end up getting an “X” because we needed to see a little bit more momentum in the revenue, in the income before we can give that a checkmark, even though the expectations are for revenue and income to turn around.
For the sentiment, it’s below the 200 day moving average.
The analyst readings had it as a hold. So the sentiment around Boeing right now, we’ve all seen the negative headlines, so the sentiment is going to get an “X” as well today.
We just are not seeing any positive news coming out on the stock just yet and we’re definitely not seeing it in its share price or from the analyst on Wall Street.
And then we’d go to the technicals, which is my favorite part dealing with the charts.
That’s usually my bank or break indicator.
And at this point, even with the green support line, the longer term green support just below where price is, it’s going to get an “X” today because when it broke below that support of the descending triangle pattern.
That gave us a price target of $250 so that’s my short term price target for Boeing, but not my 2020 price target. For that, I actually see Boeing dropping 40% over the next 12 months. That’s my 12 month outlook for Boeing.
This is a stock that’s going to remain on our tank it list today. Again, we have the short term move about 20%. Over the next few weeks, maybe in the next month or so, 20% drop on Boeing and that’s going to be really getting started. In the short term, we have earnings this week.
That’s going to be what starts to send this stock lower. I think they report bad earnings and what they say is not going to assure investors because of all the drama that’s still going on for the company.
So Boeing is going to drop on earnings this week, and if you’re a long-term investor, it may not concern you too much, but a 40% drop in a year is concerning to me, and it’s one that I want to stay away from, so it’s on our tank it list for today.
But if you want to take advantage of these short term swings in the market, the best way, the absolute best way is to trade options.
Now, I don’t recommend trading options before a company announces earnings, but the way to capitalize on it is actually after a company announces earnings.
But if you’re new to options or if you want to learn how to get an edge with options trading, I actually just put together a brand new course. You can check out my new options course that will tell you the number one way to trade options and how to get rich trading options. That’s the main goal of the course.
I have more. Click the video above to and watch to the end to see which 3 stocks I think you should bank this week and which you should tank.
Chad Shoop, CMT
Editor, Quick Hit Profits