- It's sentiment more than anything else that is driving Boeing's stock price.
- That sentiment has, I think, just turned again and thus I'm bearish.
- This is not a highly analytical decision, it's more taste and feel.
Well, there are several problems along the way but I think we all know the basics. They made a plane which then crashed as a result of ill-judged - to put it politely - design decisions.
One problem, as I said some time ago, is that we don't know what the claims for consequential loss are going to be nor how much Boeing is self insuring.
The other is, well, when is the thing going to get back into the air? The longer this takes the more lost sales there are going to be. That matters. Boeing spends a fortune in getting a new design approved, profit comes from selling many items of that new design, each amortising some small part of that design cost. Lost sales aren't just lost profit, they're revenues to make the whole program profitable lost too.
The new problem
This comes not from Boeing but from a release to the market by a supplier, Spirit. The Seeking Alpha reading of it:
Despite reports that Boeing (NYSE:NYSE:BA) is targeting a 737 MAX recertification flight for late June, the U.S. planemaker has been sending an opposite message to key supplier Spirit AeroSystems (NYSE:SPR).
Boeing has directed Spirit to "pause additional work on four 737 MAX shipsets and avoid starting production on sixteen 737 MAX shipsets to be delivered in 2020." The supplier also believes there will be a "reduction to its previously disclosed 2020 737 MAX production plan of 125 shipsets."
Less production in 2020 could mean the MAX timeline is slipping again or Boeing will deliver MAX jets at a slower rate than previously expected.
When a major supplier - Spirit essentially makes the fuselage - has to announce that the program is slipping then we do have to take note.
This is not an analysis that depends upon cash flow or numbers. This is purely about market sentiment. My reading of this is that gradually people have been regarding Boeing as a company that's getting its - umm, well, family place - act together. And I think this latest news is going to change that thought.
Not so much the slowdown itself but that we all get to learn about it not from Boeing but from the supplier. For it's obvious that this is material to that supplier, they're going to have to announce it. Boeing therefore should have been ahead of this curve and worked with Spirit to release the information. Along with soothing noises about it.
Sentiment really matters
I've not done, never have, a detailed analysis of Boeing's numbers. However, I have been reading sentiment reasonably well.
That worry over selfinsuring - yep the stock declined after this and at least partly for the reason I gave. I then said, a little later, that if the CEO kitchensinked the results then we'd see an improvement. We did.
Of course, all bets were then off with the arrival of the coronavirus. But then, after that, I said that the market was undervaluing Boeing, putting too much weight on that short term of covid. That was right too.
Please do note, I am not claiming presience. Only that sentiment matters and I am trying to read that about this stock and that's all.
I think this is another turning point in that sentiment about this company. It may even not be material to the actual results and operations. But that's not what, in the short term, determines the stock price - what we out there think about it is.
I think this slowdown in 737 MAX production - and the method of its announcement - is going to turn sentiment in Boeing. I'm therefore bear on it. This is not based upon numbers, just the taste and feel of it all.
The investor view
I am not strong enough in this belief to recommend shorting the stock. I don't think it makes any material difference to the long term either. I do think that there's going to be weakness in the price for a while. Those wanting to add Boeing as a core holding I recommend waiting for a bit. A week or three, that sort of number. Because I think it will be possible to pick it up cheaper as views harden on this latest news.
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