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Bear Of The Day: Boeing (BA)

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Boeing (BA - Free Report) has had a rough year, and it seems that the company’s complications continue to progress. The firm has been dealing with the grounding of its best-selling plane following two devastating crashes, sending this once epitome of aerospace and defense into a frenzy. Adverse developments surrounding the 737 MAX calamity have progressively pushed this stock down, and pessimistic analysts have dropped EPS estimates forcing BA down to a Zacks Rank #5 (Strong Sell).

I do not see BA as a long term sell, but these shares have room for further decline due to recent developments. Boeing announced that it would be suspending production of the 737 MAX for January of 2020, pending the FAA’s re-evaluation of the aircraft in February. This aircraft was grounded since its second crash in March of 2019, and analysts are speculating that it has cost the company more than $10 billion. There are more than 5,000 orders of the 737 MAX, but its perpetual grounding makes the present value of these orders gradually fall.

Some litigation concerns are surrounding the 737 MAX’s grounding and production suspension. The grounding is sizably reducing the current and future capacity of airlines that have ordered thousands of these planes. This opens potential litigation concerns that could impact Boeing’s profitability.

Boeing’s coveted CEO Dennis Muilenburg is resigning after 4.5 robust years in his position, driving 170% returns for investors at the helm of the company (more than doubling the S&P 500’s returns). The move to change the company’s image naturally follows the firm’s MAX issues. Muilenburg defended the MAX’s safety following its two fatal crashes, which claimed 346 lives. His initial defense of the MAX after the second crash was the beginning of the end for him. The company stripped Muilenberg of his executive chair position in October and now his CEO position.

This mix up in leadership and foggy future lead me to believe that this stock may have some short-term slippage. Muilenburg is being replaced by David L. Calhoun, who had been appointed executive chair of Boeing’s board back in October.

Take Away

Despite the firm’s near-term shortfalls, I am still confident that BA is a solid long-term investment once all the negative implications of the 737 MAX calamities are priced in.

Calhoun is a very reputable executive with a resume that warrants his newly appointed position at the helm of Boeing. He was previously the CEO of GE Infrastructure, followed by 8 years as CEO and chairman of Nielsen (NLSN - Free Report) . He took Nielsen public and was able to produce 80% returns for investors in the roughly 3 years that it was traded with him in leadership.

I am confident than Calhoun’s expertise will bring Boeing out the darkness in the long-term, but its short-term plights leaves downward potential on the table for BA, especially considering the rich multiple it’s trading at.

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