Why tune in to watch the latest drama series on your favorite streaming platform when you can just watch the Boeing (NYSE:BA) horror show unfold in real life?
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That’s the pitch to investors from Chris Olin, an analyst at Northcoast Research. With Boeing’s stock plummeting 35% year-to-date, Olin suggests there’s no happy ending in sight.
“Few investors would describe the last three months as normal, and at one point, Wall Street appeared to be binge-watching every episode of The Boeing Company, co-starring the global supply chain and specialty materials space, just to see what happens in the aerospace market next,” goes Olin’s review. “We have witnessed strange events, read about aircraft parts falling from the sky, were shocked by the lack of safety protocols, and heard from the whistleblowers. Exhausted, we are ready, to see how this story ends.”
The series finale will be aired live next week with a quarterly earnings update on Wednesday (April 24) and don’t expect a surprise twist to save the day. Olin senses a “classic kitchen-sink” quarterly report, featuring insights into why there’s a drop in commercial aircraft sales, how the FAA investigation is shaping up, adjustments to long-term production plans, the recent Dreamliner midair drop, and a “new perspective on the near-term “cash drain.”
For the full-year, Olin now expects a slight earnings loss of $0.41 (vs. +$3.25 beforehand) and a negative FCF target of $3.6 billion. Factors behind the estimates include more FAA scrutiny on the 737 assembly lines, some credence of the 787 whistleblower claim that Boeing is “putting out defective airplanes” and how that impacts production, a 90-100 unit cutback in the guide for commercial jet deliveries, and a hefty $750 million charge in the BCA segment.
“Even the great Clarence Beeks could have predicted a weak Boeing report,” says Olin in reference to the iconic inside trader in Trading Places, “but our concerns go beyond the income statement and abnormal factors that could lead to balance sheet instability.”
And while Olin concedes that negative expectations are “clearly embedded in the lower share price,” he thinks investors might not be “discounting structural issues (balance sheet stability or future cash liabilities).”
If Boeing was indeed a movie, then, Olin would probably reward it with 1 star, given he has now downgraded his rating from Neutral to Sell. Furthermore, his $140 price target implies shares will drop another 18% from current levels. (To watch Olin’s track record, click here)
Olin, however, is almost on his own here. With 17 Buy, 6 Holds, and just 2 Sells, the stock has a Moderate Buy consensus rating. Going by the $232.36 average price target, the shares will surge ~37% over the next 12 months. (See Boeing stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
