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Boeing shares cheaper, but are they a buy?

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03/14/2019 | 02:07pm EDT
FILE PHOTO: An American Airlines arrivals board displaying American Airlines flight 2669, which was scheduled to be flown by a Boeing 737 Max 8, arriving from Miami to New York City at LaGuardia Airport, is seen as cancelled, in New York

NEW YORK (Reuters) - The fall in Boeing shares has made the stock's valuation less expensive but that may not make it an obvious buy for investors.

The planemaker's shares have fallen 11 percent this week after a Ethiopian Airlines crash on Sunday that killed 157 people prompted the grounding of Boeing's global 737 MAX fleet. Boeing shares were down 0.5 percent $375.09 on Thursday afternoon.

The declines come after a run for Boeing shares that saw the price more than double over the past two years, making the company the largest U.S. industrial firm by market value.

GRAPHIC-Boeing's soaring market value: https://tmsnrt.rs/2Cv0UyP
GRAPHIC-Boeing shares double over 2 years: https://tmsnrt.rs/2CiV8zY

This week's slide means the stock as of Wednesday was trading at about 18.2 times earnings estimates for the next 12 months, according to Refinitiv data. That valuation is in line with its average forward P/E ratio over the past five years and well below the 20.5 times the stock was trading at a week ago.

But whether that means the stock is actually cheap at these levels could depend on the extent of the financial fallout from the crash, which investors and analysts were still assessing.

For example, according to Refinitiv data, the consensus analyst estimate for Boeing's earnings per share this year, which calls for 26 percent growth, has not changed this week amid the evolving fallout for the company.

Boeing 737 MAX 8 and 9 planes will remain grounded for "weeks" at a minimum until a software upgrade could be tested and installed in all of the planes, U.S. lawmakers said on Thursday.

Nancy Tengler, chief investment strategist at Tengler Wealth Management in Phoenix, which bought shares more than three years ago and has since seen the stock climb, said she was neither selling nor buying the stock this week.

“It’s fully-valued, based on what we know," Tengler said. "If people start yanking orders ... then the valuation might be a little bit high."

"This is going to be one of those restarts for the company," she added.

GRAPHIC - Boeing valuation: https://tmsnrt.rs/2O6oKWa

Analysts were seeking to determine the bottom-line implications for Boeing, especially since Sunday's was the second such crash involving the planemaker's flagship new model in six months.

The 737 MAX is Boeing's largest contributor of product revenue and earnings before interest and taxes (EBIT), according to Goldman Sachs analyst Noah Poponak.

Poponak estimates the MAX jet will account for 45 percent of total Boeing EBIT over the next five years.

"We believe investors were pricing in very limited risk to the 737 ramp-up profile, which now has greater risk within the wide range of possible outcomes following these incidents," Poponak said in a research note.

JP Morgan analyst Seth Seifman said the situation could hurt Boeing's cash flow in three ways: compensation of airlines for grounded planes; delays of deliveries of the jet; and any modifications for the aircraft.

"The situation will hopefully move forward sooner rather than later, with a path back into service, though we do not know how long this will take," Seifman said in a note.

Even with the latest uncertainty and declines, Boeing shares were up 16 percent in 2019 as of Thursday afternoon.

Through Wednesday, Boeing shares had contributed more to the 10.2-percent gain for the Dow Jones Industrial Average in 2019 than any of the other 30 components of the blue-chip index, according to Bespoke Investment Group.

Following Wednesday's decision by U.S. aviation regulators to ground the planes, Boeing shares appeared to be stabilizing, said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.

"It seems like the worst is over for Boeing, and the fact that the U.S. fleet is grounded means they have time to come up with for a fix for this," Ghriskey said.

GRAPHIC - Boeing leads the Dow higher in 2019: https://tmsnrt.rs/2FcTmT4
GRAPHIC-Boeing leads the Dow in 2019:

(Additional reporting by Caroline Valetkevitch; editing by Alden Bentley and Nick Zieminski)

By Lewis Krauskopf

Stocks mentioned in the article
ChangeLast1st jan.
AIRBUS SE -2.83% 114.88 Real-time Quote.40.81%
BOEING COMPANY (THE) -0.63% 350.55 Delayed Quote.11.24%
DJ INDUSTRIAL -1.11% 25490.47 Delayed Quote.10.50%
NASDAQ 100 -1.52% 7307.933464 Delayed Quote.17.23%
NASDAQ COMP. -1.58% 7628.28379 Delayed Quote.16.81%
S&P 500 -1.19% 2822.24 Delayed Quote.14.26%
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Financials (€)
Sales 2019 70 225 M
EBIT 2019 6 680 M
Net income 2019 4 245 M
Finance 2019 12 267 M
Yield 2019 1,75%
P/E ratio 2019 21,21
P/E ratio 2020 16,29
EV / Sales 2019 1,14x
EV / Sales 2020 1,02x
Capitalization 91 987 M
Duration : Period :
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Technical analysis trends AIRBUS SE
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 24
Average target price 134 €
Spread / Average Target 13%
EPS Revisions
Thomas Enders Chief Executive Officer & Executive Director
Denis Ranque Non-Executive Chairman
Harald Wilhelm Chief Financial Officer
Luc Hennekens Chief Information Officer
Grazia Vittadini Chief Technology Officer
Sector and Competitors
1st jan.Capitalization (M$)
AIRBUS SE40.81%102 542
BOEING COMPANY (THE)11.24%198 485
TEXTRON7.46%11 336