Boeing Set to Bomb Earnings $BA drop > -7.5%Boeing, as a company has been under an immense amount of scrutiny as the MAX 737 scandal has unfolded over the last year. Yet, the company's stock price has survived relatively unscathed. In Jan '19, Boeing released stellar earnings of $5.63/share, the stock bounced up from $360 to $445 in a little over a month - an increase of 23%. Shortly thereafter, the stock plummeted back to $360 as the drama of the MAX 737 unfolded. Even the relatively good earnings report in Q1 of '19 wasn't enough to help the stock break out of it's range. The best bull market in the last 20 years coupled with earnings in Q2 and Q3 (despite beating estimates by a sizable amount in Q2, and a narrow miss in Q3) still only helped the stock track sideways.
The 737 MAX scandal is finally coming home to roost, and the stock is likely to pay the price for it in the coming month. As the chart above shows, the ratio of earnings (in quarters where positive earnings occurred) has steadily increased to 3x the original level scene during the stock's best quarter. A 71% drop in revenues has been followed by a mere 29% drawdown in the price. If the 737 Max problem was squarely in the rear-view mirror, then perhaps a good earnings report could revitalize the stock and reverse the past 3 month downtrend.
Based on past price action during earnings, $BA has a major correction coming. With many analysts already saying we are entering a market-wide correction (while some try to hide it behind the coronavirus), any type of market-wide correction would accelerate the sell off. In addition, institutional investors have been liquidating their positions on a 2.5 sell to buy ratio.
Here are some price targets:
Earnings Beat & Max 737 Cleared to Fly before March (aka...the impossible): +8-10%
Earnings Miss & Max 737 Cleared to Fly before June: Flat to +3%
Earnings Beat > $3 vs $1.73 est - Max 737 returns to service by summer: -3% to Flat
EXPECTED: Earnings Beat < $3 vs $1.73 est & More 737 Runaround: -7.5%
Earnings Miss & More 737 Runaround: -8% to -10%
Variation to estimates coincide w/ relative market movement overall:
Expected scenario: Market up .3-.5% lessens impact of Earnings beat < $3 w/ no definitive date of Max 737 return to service: -7% to -7.2%
