Descending Boeing. Why?

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Expanding air travel is an international fact. More people book more flights everyday. Asia’s launching airlines like SBUX’s christens new coffee shops in China. BA is by far the biggest winner. And the share price drop?

Boeing’s

share price rise since the start of ’17 has two main drivers, according to Ian Bezek of Investorplace.com.*  The piece from early ’17 draws together elements that appear applicable now.  First “International aviation is booming.”  Well, yes.  We thought we knew the majority of air carriers.  One look at a current list of Asian airlines showed us differently.

 

 

No doubt tariffs are disturbing Boeing’s flight higher.  But BA’s move has been big.  Profit-taking and an elevated share price are also at work. 

 

 

Airlines are not just booking booming business.  Airlines are giddy in their growth.  Restrained fuel prices and oodles of passengers means carriers are ordering airplanes.  Right–from Boeing–there truly is no substitute.  Each is obeying the ultra-clear economic trends of increasing discretionary income, and the desire to travel.   As incomes in Asia increase, consumers move toward the speed and retaliative ease of air travel.

 

 

Graphic, BA, fund
Share prices routinely outpace fundamental support. That means they’re trading “on air.” Perhaps Boeings price action reflects exactly that. Let’s face it. The last 18 months have been exceptional for BA. The stock may need to “grow into” an elevated valuation.

 

 

Secondly, the entire defense and aviation industries jumped via “the Trump bump.”  We all saw that.  The president tweeted endlessly concerning a return to American greatness and prosperity, jobs, trade, and then defense contracting.  Think Lockheed and F-35 pricing.  Pricing of the F-35 was criticized and Lockheed’s share price fell, 2.6%, for about five minutes.  That was when STOCKjAW jumped in on LMT.

 

Following his January inauguration a very pro-business president assumed a role as salesman-and-chief.  First sales stop–Saudi.

 

Suddenly Trump was in Saudi selling U.S. defense.  So twin drivers or growth–booming airlines all pumped on a radiant future and ordering planes to prove it, and a pro-business president out front selling, even on the road.

 

6-13-18.

Charts, BA, 6-13, x
BA’s big run is a concern. A 10 year order book won’t protect the share price.

Current $357.88.

EPS growth Rate(Q1 ’17-Q1 ’18) 24.9%.

2018 consensus FY EPS estimate $14.72.

Forward P/E 24.3

Peg Ratio 1.49.

1 Year forecast EPS growth 42.9%.

Dividend yield 1.91%.

Our Cost Basis $366.12.

THE POSITION IS LIKELY NOT SUSTAINABLE.  WE BELIEVE OUR MOVE WAS RIGHT INTO THE BLADE OF A FUNDAMENTALS-DRIVEN REVALUATION.  BLINDED BY FLIGHT WE FAILED TO ASK THE RIGHT QUESTIONS.  DROP RUNS OVER AND AGAINST A BULLISH CHART FORMATION–PREDOMINANT VIEW.  STOCKjAW NOW LOOKS TO PREPOSITION, PERHAPS WAINTING FOR A FULL CORRECTION.

6-17-18.

Charts, BA, 6-17X
Two days further from our first chart we see BA continuing down. Momentum indicators read as uptrend. Yet, there it is–down.

 

 

The result for Bezek is a BA share price that has simply out-striped it’s actual “fundamental economic progress.”  Prices routinely surge ahead of supporting fundamental reality.  Runs begin and soon draw attention and followers.  Euphoria starts trading and euphoria has no brain.

 

“The once highly cyclical business of Boeing has become secular, due to a rapidly expanding flying public.”–Jim Cramer

 

 

Is that it?  We have a booming airline industry, enjoying low fuel prices and world-wide growth, becoming giddy on earnings, and working the Boeing order line.  Next we have a president famous for business acumen,  beating the defense drum to international customers.  Wall Street takes note and relevant shares soar, beyond their normal rate or merits.  Now suddenly, we pivot.  Everyone realizes the fundamentals no longer support a clearly elevated BA share price.

 

 

Bezek also notes “financial maneuvering” on the part of Boeing.  The suggestion is that BA’s pension funding efforts have created investment gains that make BA’s earnings jump.  So, BA’s earnings growth rate is exaggerated by investing returns.  The claim is that BA lacks proper dividend coverage, thus we’ve gotten “financial maneuvering.”

 *Ian Bezek.  Investorplace.com
“Boeing co stock about to run into a storm.”
https://investorplace.com/2017/12/boeing-ba-stock-storm/

 

Thanks for reading.

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Additional resources:

Investopedia.com.  Seriously Wonderful.  Fact.
http://www.investopedia.com/
Charles Schwab.  In Our Opinion, the best broker going.
https://www.schwab.com/public/schwab/client_home
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3 thoughts on “Descending Boeing. Why?

  1. Great job as always . Well researched. Boeing really controls a great deal of American manufacturing companies from Tier 1 subcontractors to your local machine shop. Here in Augusta Kansas that would be DJ Engineering. Should we see continued downward pressure in Boeing pricing, What is the likely effect on the supply chain, if any.

    Keep on trucking,

    Fitz

    Like

    1. It’s always a treat to hear from seasoned industry insiders–a career specialist in composites.. We’re currently not aware of pricing pressure on products, yet the share price is definitely pressured. Boeing’s issues are market related. Perhaps investors feel this leg up is over.
      BA penetrated and then retreated from former highs. Several more down days followed(chart 6-17.) Boeing facees on-going technical resistence. We may be looking at another downward day today, Monday. Our question remains–stay or go. Thanks Fitz.

      Like

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