Boeing gets downgraded
Boeing (BA) lost a long-term bullish backer today, with Argus Research downgrading its rating for the stock to “hold” from “buy,” citing the plane manufacturer’s response to two deadly crashes involving its fast-selling 737 MAX. Although Argus analyst John Eade’s dividend discount model suggests a fair value of $460, he feels the aerospace giant (XLI) may face tough times ahead, and the ongoing probe may pressure its stock price in the near term.
According to CNBC, Eade wrote in a note to clients today, “We think the investigation is likely to cap multiples, and that earnings forecasts are likely to decline.” He felt a “hold” rating was most appropriate until investigators release conclusions on the causes of the accidents and Boeing responds to those conclusions.
He wrote, “If the cause of the crashes turns out to be a mechanical or engineering issue, Boeing can correct the problem and the industry, which is heavily dependent on the plane, the 737 Max jet, can move on.” The analyst is optimistic about Boeing’s long-term prospects, given the company’s presence in the growing commercial aerospace industry and its significant backlog. Eade had been bullish on Boeing since May 2012, when the stock was trading at $69. Since then, Boeing stock has climbed ~500%.
Of the 25 analysts covering Boeing, six recommend “strong buy,” 13 recommend “buy,” four recommend “hold,” and two recommend “strong sell.” Before March 10, seven of the 24 analysts recommended “strong buy,” 12 recommended “buy,” and five recommended “hold.” Their average target price for the stock has fallen to $436.95 from $443.75 on March 10.
Boeing stock has fallen 10.4% since last week. As of March 8, with a YTD (year-to-date) gain of 31%, the air defense contractor was the best performer among Dow 30 stocks. However, the recent plunge in its price has eroded its YTD gain to 17.2%, and it has slipped to tenth place among Dow 30 stocks. IBM (IBM), up 24.2% YTD, is the strongest Dow 30 stock, followed by Cisco (CSCO) and Goldman Sachs (GS) with 23.5% and 22.1% gains YTD, respectively.