Boeing ’s Nightmares on Dreamliner Might Present Buy Opportunity…
June 23rd, 2009>>>Investment Ideas>>> The Boeing Dreamliner continues to have its recurring nightmares. Tuesday’s announcement marked the fifth postponement in its two year delay. Below is an excerpt from the New York Times.
"The Boeing Company said on Tuesday that it would again delay the first flight of its new jet, the 787, the latest setback in a program that is considered crucial to the plane maker’s future.
Boeing executives said that they had found additional stress where the wings attach to the sides of the plane. Minor modifications should fix the problem, they said.
But they also said it could be weeks before the flight testing could resume. And stock analysts said that it would mean a delay in the delivery schedule, a concern that caused the company’s stock to drop as much as 9 percent Tuesday morning.
The problems were the latest in a series of delays for what promises to be the world’s most sophisticated passenger plane and a key to Boeing’s future.
The company has more than 850 orders for the plane, which is known as the Dreamliner and is supposed to be lighter and more fuel-efficient than other commercial aircraft. The first delivery was scheduled for the first quarter of 2010.
Boeing executives said that the fixes would require only a few small parts to reinforce areas of one to two square inches that displayed excess stress in a test that involved bending the wings. They said they would revise their financial guidance during their second-quarter earnings call in July…"
Technical analysis of Boeing’s (BA) daily chart over a seven month period shows the stock had already been showing plenty of signs of cracking. However, yesterday’s new low broke temporary support levels and violated its uptrend. After having rallied for @ +83% return from its March 2009 lows, BA has retraced 38% of its upside move and trying to find support. The next key areas of support are at its 50% and 62% retracement levels, i.e. respectively @ $41.18 and @ $38.23.
Fundamentally, the problems it has encountered bringing this plane to market are of its own doing and, while not good, are still more desirable than facing customer cancellations. Besides, is it humanly possible to screw up this roll-out many more times? Boeing and Europe’s Airbus represent a duopoly in the commercial air transportation industry which is long overdue for an upgrade cycle. Valuation-wise, the stock trades at a P/E @ 15 and sports a dividend yield @ 3.6% and PEG ratio @ 1.25.
Whether there is more potential downside from its current price ($43.48 while writing this report) could depend a great deal on investor sentiment towards the broad markets. Ideally, it would be nice to see BA retrace to @ $38.00 per share range which would produce an attractive dividend yield @ 4.4%. For an acquisition strategy, I might be inclined to write naked out-of-the-money puts if the price continues to fall and for risk management upon acquisition, probably collar the stock with a long put and short call. Nothing is ever certain in the stock market, but I would take bets that when the Dreamliner can fly, it will be too late to buy.
(P.S. To anyone with reading comprehension problems, I am not advocating the outright purchase of BA shares at this price. Instead, I am calling attention to it as an acquisiton candidate in the event of further broad market volatilty and a lower share price. For those skilled enough in options trading, the writing of covered puts or spreads may also present some profitable opportunities.)
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