Source: PaxForex Premium Analytics Portal, Fundamental Insight
Despite the relative strength across major stock market indices in 2024, Boeing has struggled significantly. By mid-year, shares of the aerospace giant have plunged approximately 30%, positioning it as one of the worst performers in the Dow Jones Industrial Average. The company has faced a combination of poor financial performance and numerous public relations setbacks, indicating a period of extended turbulence.
Boeing has been under intense scrutiny within the aviation industry for several months. Earlier this year, the company faced severe criticism after a passenger door blew out on one of its 737 jetliners during an Alaska Airlines flight. This alarming incident was just the beginning of a series of setbacks for Boeing.
Throughout the year, multiple Boeing whistleblowers have raised significant concerns about the company's quality assurance and manufacturing controls.
Adding to these issues, recent reports revealed a helium leak on Boeing's Starliner rocket capsule, which has left two astronauts stranded on the International Space Station (ISS). This latest problem has further shaken investor confidence in Boeing.
Despite the extensive negative media coverage surrounding Boeing, it is essential to consider several key factors.
Firstly, the aviation industry is dominated by Boeing and Airbus, making it unlikely that demand for Boeing's jetliners will suddenly disappear, leaving the company without growth prospects.
Secondly, Boeing has a significant government contracting business within its Defense, Space, and Security segment. While public sector sales can be unpredictable due to the nature of these contracts, they remain a stable source of revenue.
Given Boeing's position as a major defense partner, it is improbable that the US government will withdraw contracts from the company despite recent challenges.
However, Boeing's cash flow situation is concerning. The company is currently burning a significant amount of cash. During the first-quarter earnings call, management indicated that free cash flow is expected to improve sequentially in the second quarter but will still be a substantial use of cash.
In the long term, Boeing aims to achieve $10 billion in free cash flow but acknowledges that this goal will take longer than initially planned, with expectations now set for the 2025/2026 window.
The skepticism about investing in Boeing arises from these statements. In 2024, Boeing has paid hundreds of millions of dollars in fines related to the Alaska Airlines incident and is expected to plead guilty to the Department of Justice (DOJ) fraud investigation tied to two crashes of Boeing jets in 2018 and 2019.
As the company enhances its quality assurance and manufacturing controls, short-term costs are likely to rise. Additionally, it is uncertain if the reputational damage will result in lost business for Boeing.
The combination of rising costs and substantial fines is undoubtedly impacting Boeing's cash flow, making growth more challenging.
While Boeing is not necessarily a "falling knife," the current price action does not present a clear opportunity to buy the dip. Management has not provided sufficient reassurance that better days are ahead. For now, it is advisable to monitor Boeing's progress but avoid investing in the stock.
As long as the price is above 175.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 179.80
- Take Profit 1: 190.00
- Take Profit 2: 200.00
Alternative scenario:
If the level of 175.00 is broken-out, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 175.00
- Take Profit 1: 170.00
- Take Profit 2: 165.00
