While the broader U.S. stock market started this week on a solid note, the same cannot be said about the Dow Jones Industrial Average, which rather unfortunately registered its widest deviation from the S&P 500 over a two-day span in years. In the past two trading sessions, the S&P 500 outperformed the Dow by 1.36 percentage points, the widest gap since Oct 21, 2014 when the broader market benchmark had outpaced the blue-chip index by 1.44 percentage points, per the Dow Jones Market Data.
Indubitably, The Boeing Company (BA - Free Report) is to be blamed for the two-day divergence between the S&P 500 and the Dow. Tragedy struck the airliner when one of its Boeing 737 Max 8 crashed in Ethiopia on Sunday, killing all 157 people on board. Such a devastating event raised concerns about the new model of the aircraft. After all, the same model also went down in Indonesia last October, killing 189 people. The flight had downright lost communication with air traffic controllers six minutes after takeoff.
Needless to say, Boeing’s shares went tumbling $47.13, or 11.2%, since Friday’s close. By the way, it’s the biggest two-day selloff for Boeing in nearly a decade. And it’s all because of an array of regulatory authorities across the globe grounding the 737 Max aircraft, thanks to the second deadly crash in consecutive weekends.
In fact, airline stocks in general had to bear the brunt of the crash, even without having exposure to 737 Max. Well! That’s purely panic driven as traders pulled money out of the airline industry at least for the time being. Prominent airline stocks such as American Airlines Group Inc. (AAL - Free Report) , Southwest Airlines Co. (LUV - Free Report) and United Continental Holdings, Inc. (UAL - Free Report) to name a few saw their shares decline more than 2% following the crash news.
Is Boeing Doomed or Will It Bounce Back?
Prima facie Boeing is in deep trouble. But, let’s admit that even after this drubbing, Boeing’s share price is at $375.41 and remains the highest among the Dow components. Moreover, it’s likely to hover near that price since it’s too early to tell whether the airplane itself is to be held responsible for the twin crashes. Investigations are, after all, still in early stages. Let us not forget that maintenance crew do update software on a regular basis, so we can vouch that the software isn’t the culprit behind the crashes.
So, if anyone is to be blamed it maybe the flights crew and the training they received. It’s also worth pointing out that even though the pilot and the copilot had completed the required hours of flight time, did they really receive enough training in a computer simulator. Don’t forget that such training is equally important if not more than the total amount of flight time.
Now, some may say that let the investigation conclude the fate of Boeing. Let me enlighten them that whatever is the result, Boeing isn’t going down and President Trump just simply won’t ground the Boeing 737 MAX airliner. And why so? Simply because there are only a few American companies more valuable than Boeing. And he cannot let anyone meddle with its brand name. It employs almost 150,000 workers, exports several planes around the globe and along with Airbus leads the world market for airliners.
To top it, Boeing makes a hell of a lot of weapons for the U.S. military. And Defense Secretary Patrick Shanahan, who has worked at the top level for almost 30 years at Boeing, is known to be Boeing biased. This means a whole heap of defense contracts may land on Boeing’s feet. Thus, going forward, Boeing’s shares are expected to gain traction as the firm frequently tops the list of government contractors.
Boeing Essentially is Doing Good
Boeing has for a prolonged period of time quite efficaciously weathered all kinds of bottlenecks and improved shareholders wealth through dividend payments and share buybacks. The company has unfailingly paid quarterly dividends for the last eight decades and increased its dividend payout once every four quarters for the last seven years. In fact, Boeing’s quarterly dividends soared 389% in the last seven years.
(Source: Boeing’s Press Release)
At the same time, Boeing initiated its first share buyback program in 2013. Since then, Boeing has repurchased $41 billion worth of its own shares.
Boeing currently sports a Zacks Rank #1 (Strong Buy). In the past 60 days, Boeing has seen nine earnings estimates move up, while none moved down for the current year. The Zacks Consensus Estimate for earnings increased 10.5% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s expected earnings growth rate, meanwhile, for the current year is 25.7%, more than the Aerospace - Defense industry’s projected gain of 3.3%. The company has already outperformed the broader industry so far this year (+16.4% vs +14.1%).
Consequently, you can very well shrug off the two-day drop Boeing witnessed. In fact, you can now buy Boeing stock without burning a big hole in your pocket.
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