The Boeing Co. (NYSE: BA) is one of the largest defense companies on the planet, and it's the backbone of commercial air travel in the United States.
However, the production of the company's signature product – the vaunted 787 Dreamliner – has been delayed countless times, costing the company revenue and credibility.
Now, it's likely to see even more delays as a result of the terrible disaster in Japan.
In my mind, that makes Boeing stock a "Sell" (**).
Boeing spent the last decade designing and building the next generation in commercial aircraft.
The 787 Dreamliner was designed to carry passengers farther distances, in greater comfort, while consuming less fuel. It incorporates a significant number of new technologies into its design.
However, the challenge of incorporating these technologies has caused Boeing to miss deadline after deadline. In fact, the current test aircraft caught fire during a test flight last fall and had to make an emergency landing.
The 9.0 earthquake in Japan is the latest event to adversely affect Boeing's schedule of Dreamliner deliveries. Japan is a major supplier of key sub-modules for the airplane. These parts are built in Japan, and shipped to America for final assembly.
It is an understatement to say that Japan will be busy rebuilding its damaged infrastructure for quite a while. The rolling blackouts will most likely keep some of the highest technology off line, until guaranteed supplies are available.
Boeing subcontractors are already speaking to the media about how they will be affected by availability of gasoline, among other things.
"There is the potential for future parts shortages with a small number of suppliers related to their sub-tiers suppliers and/or infrastructure impacts," Doug Alder, a spokesman for Chicago-based Boeing, recently told MarketWatch. "We are working through each of these risks and developing plans to mitigate their impact."
Considering the continual slippage in the 787 Dreamliner, there is no reason to believe that Boeing will be able to start hitting its deadlines ? especially since the company was experiencing delays in all of its major new product lines long before the tragic events in Japan. This has already caused a negative earnings growth cycle.
Boeing last month announced it had beat out European Aeronautic Defense & Space Co. (EADS) – the company that builds Airbus planes – for a contract to build a fleet of U.S. Air Force refueling tankers. However, that surprise win already has been fully priced into the company's stock.
Boeing stock has a 52-week range of $59.48–$76.00. It closed Friday at $69.07, giving the company a Price/Earnings (P/E) ratio of 15.5.
The company has a market cap of $50 billion with an Enterprise value of $53 billion once net cash and debt are accounted for. It generated $63 billion in revenue during the trailing twelve months.
To summarize Boeing's situation:
- It is already three years behind schedule on its 787 Dreamliner.
- The Dreamliner will likely see further delays as a result of the tragedy in Japan.
- The company also is experiencing delays with its modernized 747 program.
- It has negative earnings growth over the trailing twelve-month timeframe.
- News of the newly won airborne tanker contract is already priced into the stock.
Boeing is going to face strong headwinds in the near future. The company's stock is a "Sell" until a supply chain is rebuilt around the damage done to the Japanese economy. The world does not have a lot of spare 787 and 777 capacities.
(**) Special Note of Disclosure: Jack Barnes has no interest in The Boeing Co. (NYSE: BA).
Barnes launched his own shop, RIA, in 2003, just as the second Gulf War was breaking out. In early 2006, after logging a one-year return of nearly 83%, Forbes named Barnes the top stock picker in its "Armchair Investors Who Beat the Pros" competition. His two audited hedge funds generated double-digit returns in 2008.
Barnes retired to the beach in the summer of 2009, and continues to write from there. He's now the author of the popular blog, " Confessions of a Macro Contrarian," and his " Buy, Sell or Hold" column appears in Money Morning on Mondays. In his BSH column last week, Barnes analyzed Freeport-McMoRan Copper & Gold (Nasdaq: FCX).]
News and Related Story Links:
- Money Morning News Archive:
Previous "Buy, Sell or Hold" Features.
Electrical fire forces emergency landing of 787 test plane
- Wall Street Journal:
Quake Related shortage idles GM Plant
Confessions of a Macro Contrarian.
- Money Morning:
The Boeing Co. (NYSE: BA) Wins Controversial $35 Billion Contract for Refueling Tanker
- Money Morning:
Déjà vu All Over Again: Boeing Delays Dreamliner for Sixth Time
Boeing readies for Japan-related disruptions