Back to top

Analyst Blog

The share price of The Boeing Company (BA - Analyst Report) plummeted as the company’s next-generation 787 Dreamliner was once again in the news for the wrong reason. The Dreamliner operated by Ethiopian Airlines caught fire while it was parked at London's Heathrow Airport.  Meanwhile another 787 operated by Thomson Airways on way to Orlando, Fla., had to return to Manchester after unspecified malfunctions.

Fortunately, both the incidents did not cause any injuries. The only casualty it seems was Boeing’s stock price which suffered the biggest drop in two years.

The much-hyped 787 Dreamliner was marred by glitches from the very beginning. First, its delayed launch and then the two battery overheating incidents in Jan 2013 that grounded the entire fleet of 50 Boeing 787 airplanes. However, in Apr 2013, The Boeing Company received the green light from the U.S. Federal Aviation Administration for the 787 Dreamliner’s redesigned battery.

One can relate the current fire to Boeing 787’s previous battery issues. However, the location of the fire proves that this incident is no way interlinked to the previous series of glitches and small technical problems.

The fire issue is being investigated by the U.K. aviation officials and Boeing engineers. If the 787 fleet needs to be grounded yet again, subject to investigations and regulatory decisions, it will be a huge blow to investor confidence. And if it finally boils down to a much graver manufacturing fault, the stock price of this premier airplane manufacturer and defense prime will likely be crushed.

Currently, the company builds Dreamliners at the rate of 7 per month and expects to increase the rate to 10 per month by 2013 end. However, with the increasing demand for Boeing Dreamliner, this rate of production does not seem to be enough. With approximately 900 orders in hand, the company would take more than a decade to deliver all these planes. We note that sales are only recorded once the delivery is made and not earlier. So, a growing order book does not necessarily translate into near-term revenues. Indeed, the company recently indicated that its South Carolina plant that builds Dreamliners would half the production rate per month, thereby not being able to meet its 2013 target.

Despite the untoward incident, Ethiopian Airlines continues to trust its contractor. It plans to continue to operate the other three 787s in its stable. Moreover, other airline customers including United Continental Holdings, Inc. (UAL - Analyst Report) and All Nippon Airways have confirmed that their own 787 fleet would remain in operation and do not believe that these malfunctions are big enough to ground the fleet. The company presently retains a short-term Zacks Rank #2 (Buy).

Other stocks to look out for in the space are Embraer SA (ERJ - Analyst Report), and Northrop Grumman Corp. (NOC - Analyst Report), both with a Zacks Rank #2 (Buy).

Please login to or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research


Are you a new Zacks Member or a visitor to

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.80 +7.04%
BANCO DO BR… BDORY 14.74 +5.66%
AIR INDUSTR… AIRI 9.99 +4.15%
EQT MIDSTRE… EQM 98.14 +3.38%
WEATHERFORD… WFT 23.64 +3.10%