Boeing’s market value
Boeing (BA) made a remarkable run this year due to growing optimism about its massive order backlog, rising revenues, and cash flows. The company’s announcement of increased pricing and production output for its 737 MAX series planes made investors and analysts optimistic about its future performance. From the beginning of 2019 through March 8, the stock rose 31%.
However, Boeing stock witnessed a massive sell-off after the Ethiopian Airlines crash on March 10. In the last seven trading days, the airplane manufacturer (XLI) has lost 11.6% or ~$28 billion of its market value.
The latest sell-off has eroded the air defense contractor’s YTD (year-to-date) gain to 15.8%. Boeing was the highest gainer among the Dow 30 stocks until March 8. However, the latest fall in the stock price has moved Boeing to 11th place. IBM (IBM), which has risen 23.6% YTD, has become the top performer among the Dow 30 stocks. Cisco (CSCO) and Goldman Sachs (GS) are second and third with YTD returns of 23% and 20.4%, respectively, during the same period.
Following the two deadly crashes involving Boeing’s 737 MAX series planes in less than five months, the company is facing worldwide grounding of its fast-selling jets. The ongoing investigation might increase the company’s troubles.
Several analysts think that it will take Boeing months to solve the issue. The worldwide grounding and scrutiny will likely cost Boeing billions of dollars. Boeing might have to pay millions of dollars to compensate the deceased passengers’ families. Some airlines like Norwegian Air are seeking compensation for temporarily suspending their 737 MAX fleets.
The most difficult challenge for Boeing could be retaining its customers for the 737 series aircraft. The 737 series planes account for ~80% of the total aircraft orders and contribute to one-third to Boeing’s total operating profit. Cancellations or delays in the deliveries could hurt Boeing’s revenues and cash flows.