737 Max crisis
Boeing (BA) is currently going through one of the worst periods in its history following two deadly crashes that involved its fast-selling 737 Max series planes. The airplane manufacturer (XLI) is facing a probe from federal agencies about its anti-stall system, also known as MCAS (maneuvering characteristics augmentation system), which is installed in the company’s 737 Max aircraft.
WAKE UP WITH BAGELS & STOX, OUR NEW EMAIL THAT ENTERTAINS AND INFORMS YOU BEFORE THE DAY STARTS. SIGN UP HERE!
The primary investigation suggests some faults in the flight control system, which might have led the plane to automatically guide the aircraft nose lower despite repeated efforts by pilots to take control. Investigators are also suspecting misconduct or lapses in gaining approval for the system.
Additionally, following the Ethiopia crash on March 10, countries and air carriers around the world grounded their 737 Max fleets. Currently, there are 371 737 MAX jets in operation worldwide.
Analysts’ bullish stance
Despite the ongoing troubles related to its 737 Max series planes, the majority of Wall Street analysts have maintained their bullish recommendation on Boeing stock. They believe that it will take Boeing three to six months to solve this problem, which might impact its financials in the near term. However, in the long run, the company will likely witness strong revenue and earnings growth due to its huge order backlog for over 5,000 jets, enhanced production, and pricing.
Nonetheless, a few analysts downgraded their rating on the stock after the Ethiopia crash. Argus Research lowered its rating on the stock to “hold” from “buy” on March 19. Furthermore, in March, the stock saw its first “sell” or some equivalent rating in the last 19 months.
Boeing has received a consensus “outperform” recommendation from analysts polled by Reuters. Among the analysts, 77% provided bullish recommendations on the stock. Among the 26 analysts covering Boeing, seven recommended a “strong buy,” 13 recommended a “buy,” four recommended a “hold,” and two recommended a “strong sell.” The Wall Street consensus target price of $436.10 depicts a return of 10.2% from the current market price of $395.86.
Analysts’ one-year target price on other major aero defense stocks such as Lockheed Martin (LMT), General Dynamics (GD), and Northrop Grumman (NOC) reflects a return of 14.6%, 19.8%, and 17.9%, respectively.
In the second quarter, Micron’s gross margin fell by 820 basis points YoY to 50.2%. The operating margin fell from 49.4% to 36.2% on a YoY basis.
In the last month the CSI 300 is down 11.5%, much more than US indices.
JCPenney (JCP) is slated to announce its results for the first quarter of fiscal 2019, which ended on May 4, on May 21.
The key point of contention in the US-China trade dispute is the large trade deficit the United States runs against China.
On May 16, the Labor Department reported jobless claims for last week. Initial jobless claims fell by 16,000 to 212,000 for the week ended May 11.
Jeffrey Gundlach recommended investors take advantage of the volatility in interest rates at the recent Sohn Conference.
Tesla (TSLA) has fallen 4.2% as of 11:55 AM EDT on May 17. While US equity markets opened in the red today, they've recouped their losses.