Hopefully, I don’t have to spend valuable space here discussing the trials and tribulations of Boeing with terrible crashes in 2018 and 2019 due to software/sensor issues in their popular 737 plane. One CEO later, is Boeing past the troubles?
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Well, almost. But you have to get out ahead of these things or it is too late. Current earnings have taken hit after hit. Past earnings deteriorated for the first three quarters of 2019 and turned dramatically negative in the fourth quarter. However, forward EPS projections appear to improve for 2020, turning positive again in the third quarter of 2020 and a further increase in the fourth quarter.
The stock price has followed a similar trend: a high of just over $440 in early March of 2019, down to its current price of $338.30 at the close today. It’s this earnings pattern that our quantitative models picked up on. Should earnings do what analysts think they will and rise back up to near previous levels, it’s a buy at this price. We predict a one-year price target of about $386, or a 14% return, and that does not include dividends.
The performance of BA will, of course, depend greatly on future adjustments to these earnings expectations, and actual earnings numbers as they are released. If you buy BA, keep tabs on earnings and look for a steadily increasing pattern from the fourth quarter 2019 low. The first and second quarters of 2020 should still show negative earnings, but the second quarter should close the gap. Then there is a forecasted pop back up to positive earnings in the third and fourth quarter of 2020.
This all assumes that Boeing fixes the problems with the 737, and doesn’t crash any more planes. All bets are off if additional bad news happens, and investors will be fast to sell if Boeing can’t get control of things. A risky play, but a historically strong and well-run company means it’s not as risky as it could be. Keep in mind that over the past 5 years, even with the recent pullback in the stock price in 2019, Boeing returned about 136% compared to the general S&P 500 performance of 61%. Currently, the dividend yield is 2.34%. Investors have the wind at their backs.