Before today’s 1.8% surge, shares of Boeing (BA - Free Report) had sunk over the last week as investors began to price in possible tariff-related backlash aimed at the aerospace giant. With that said, much of the Chinese retaliation news is relatively speculative at this point, while Boeing’s new lower price is much less debatable.
Reports began to surface last week that one possible retaliatory action China could take against the U.S. after President Donald Trump’s new steel and aluminum tariffs might be to back out of—or tweak—some of its current multibillion-dollar deals with Boeing.
Boeing announced that China Aviation Supplies Holding Company ordered 300 planes in a deal worth $37 billion last November. Boeing has also estimated that China could purchase upwards of $1 trillion worth of airplanes over the 20 years, with Chinese customers set to buy roughly one out of four aircrafts Boeing assembles.
What has some investors worried is that Chinese companies and or the government could choose to buy their planes elsewhere, including from European rival Airbus (AIR - Free Report) , as a way to strike back against Trump’s steep tariffs aimed almost entirely at China. Boeing’s CEO Dennis Muilenburg addressed the issue last week, taking a very balanced approach.
“We've had a very good dialogue with the administration and our Chinese customers, Chinese government. ... It's important that we have a balanced approach to China. …We need fair trade, fair competition,” Muilenburg told CNBC last week. “But as you look at the China market from an airplane standpoint… It's becoming the world's biggest airplane market."
It is unclear exactly what might happen between Boeing and China, but the company does have billions of dollars worth of U.S. contracts and sells planes throughout the world and the rest of Asia. Nevertheless, this recent downturn has forced Boeing to return to a more reasonable price point for many investors.
Boeing stock had skyrocketed nearly 85% over the last year, including a 12.5% surge since the start of 2018. These massive gains caused Boeing’s P/E ratio to reach 30.6, the highest earnings multiple that Boeing had traded at in years. For instance, the company was trading at 16.8x forward earnings at the end of the fourth quarter of 2016 and 26.8x at the end of the same period in 2017.
Now, thanks to its brief sell-off, Boeing is currently trading at around 23.6x, which is only a slight premium compared to one of its biggest competitors, Lockheed Martin (LTM - Free Report) .
Boeing is a Zacks Rank #1 (Strong Buy) and also currently boasts an “A” for Growth in our Style Scores system.
On top of that, Boeing is certainly much cheaper than it was just a few months ago and has historically traded at a premium compared to the “Aerospace – Defense” industry average, which means now might not be a bad time to buy the stock as its bottom line is also projected to expand at a solid rate for a company of its age and size.
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