Zhitong Finance APP learned that yesterday (April 11), Boeing (BA.US) CEO Dennis Muilenburg delivered a speech saying that by preventing false angle of attack sensor readings, the software update will make the 737 MAX safer.
also yesterday, Boeing's stock price rebounded 1.43% to close up $370.16.
Muilenburg's remarks are worth believing? Do investors want to buy it?
Analysts believe that Boeing stocks are still very volatile. Two consecutive crashes in a short period of time have ruined Boeing's reputation for a while, and its stock price has fallen by about 17% from its historical highs. After that, there were even more bad news. The orders for 737 MAX were cancelled and lawsuits emerged one after another.
Analysts remind investors to note that the stock price of Boeing is not cheap, and its current stock price is 23 times its EPS.
In addition, Boeing's revenue and earnings expectations are still too high. 737's sales are declining sharply, EPS is likely to decline year-on-year, and future earnings expectations also need to be lowered. Analysts believe that Boeing's first-quarter financial report data may be ugly.
Analysts said that the stock's PE valuation should be lower due to huge uncertainty, meaning the company's share price may fall further to better reflect Boeing's current dilemma.
737 orders plummeted
According to the company's recent report, its widely popular 737 aircraft orders fell about 74% year-on-year, down from 122 in the first quarter of 2018 to 32 in the first quarter of 2019. At a price of about $100 million per aircraft, this means revenue fell by about $9 billion year-on-year.
In addition, it is estimated that Boeing will spend $500 million to "fix" the 737 aircraft problem, but this estimate does not appear to be included in litigation compensation, so analysts believe that the figure is much larger.
First-quarter financial report may be the worst in history
more than Wall Street investment banks believe that the US stock market will usher in the worst financial report season in history. Analysts believe that Boeing may be the worst among the worst.
It is reported that Boeing will release its first-quarter earnings report on April 24, after the market generally estimated that its revenue would reach US$24 billion, a year-on-year increase of 2.6%. However, with the sharp decline in 737 sales, Boeing's revenue could drop sharply, or even to a minimum of about $21 billion, which would be about 10% lower than the same period last year.
In addition, the first quarter EPS is estimated at $3.64, the same as last year. However, analysts believe that EPS may also be negatively affected by 737, and may end up being only $2.75-3.00, which means a year-on-year decline of 17.5-24.5%.
The general market expectation of the whole year may be too high
Zhitong Finance APP is expected to arrive. The market generally expects Boeing’s EPS in 2019 to be US$18.16, a year-on-year increase of 13.5%. If Boeing can achieve this, the stock's current expected PE value will be around 20 times. However, analysts say this may be just wishful thinking, as Boeing doesn't guarantee that 737 orders won't be further reduced in the second quarter and later this year, judging by the current situation.
In fact, it has entered the second quarter, and about 400 737 MAX aircraft around the world are still grounded, and the negative impact of this problem is much more difficult than any problem Boeing has dealt with in the past.
Indonesian Airlines Garuda recently canceled orders for 50 aircraft worth about US$4.9 billion. In the next few weeks, months and even years, Boeing will probably be in trouble. In addition to the direct huge litigation costs, it also gives its old rival Airbus the opportunity to take advantage of the situation.
It is estimated that airlines in the United States alone have lost about $60 million in revenue due to the grounding of the 737 fleet. Since its inception, it has lost about $1.8 billion.
What if the flight ban continues to be banned after the three-month flight ban? What if the "software repair" launched by Boeing does not work and another accident occurs? Of course, the whole world hopes that such air accidents will not happen again. But analysts believe that if investors do not have in-depth understanding and research on Boeing, but simply because its stock price has fallen by 17% recently, investors need to rethink this decision given the company's current uncertainty.
According to statistics, the lower limit of Boeing's 2019 EPS estimated range given by Wall Street analysts is currently only $11.80, which means that the stock's current trading returns are 31.3 times the expected returns.
Analysts believe that Boeing's earnings may not drop so quickly, but the valuation of $20 or $18 is too optimistic. If calculated based on the median of the EPS estimated range, Boeing is expected to reach US$13-15 this year, and its current stock price is 24.6-28.5 times the EPS valuation, which is obviously not cheap at all.
In analysts' view, Boeing's forward earnings expected should be close to 17-20 times. So, assuming the company's EPS reached $15 in 2019, its share price would be between $255-300, well below the current $370.16.
Put the interests above life?
Following the family of the victim's victim's lawsuit against Boeing, Boeing faces lawsuits from shareholders accusing it of concealing the 737 MAX aircraft and putting the interests above the safety of the aircraft, resulting in economic losses to shareholders.
Zhitong Finance APP learned that the 737 MAX may be a "new aircraft", but it is based on technology from decades ago. The 737 MAX is actually an upgraded version of the 737 passenger plane that was launched on the market more than 50 years ago. Since Boeing does not need to retrain pilots to fly new aircraft by upgrading the aircraft rather than starting from scratch, the 737 has a great market competitive advantage.
However, this "patch-in" aircraft lacks certain safety features that may be key in crisis situations. In fact, the 737 is the only modern Boeing aircraft without an electronic alarm system.
Where is the bottom line for buying Boeing stocks?
Whether to buy Boeing stocks, analysts said the answer is actually very simple. Ask yourself, if the 737 MAX can fly, will you sit? If you can’t sit, don’t buy it!
Of course, Boeing will eventually solve the problem of the 737 MAX. However, there are many unknown factors in the whole process, and it is too early to say "take at a low price". The impact of the aircraft crash on Boeing's brand, image, revenue and profits may be much worse than the market expected.
In fact, both revenue and EPS expectations may be lowered this year, and there is also a chance to continue to lower in 2020. As revenue growth slows, Boeing will not continue trading at such a bubble valuation, and multiple compressions may occur as earnings expectations fall.
analysts believe that Boeing may fall to around $255-300 in the coming months, and that would be a better time to re-examine the stock and consider longing the stock.
