Fallout from the Max 737 issue may have the stock chart for Boeing (Boeing Stock Quote, Chart, News NYSE:BA) looking pretty choppy over the past year, but investors should be thinking about cashing in on the stock’s depressed prices, says Scotia Wealth’s Greg Newman, who argues that the wise money is on Boeing returning to growth and glory.
Boeing’s share price closed Monday up marginally as the company looks to right its wrongs in connection to the twin crashes of 737 Max jets over the past year which killed 346 people and led to the global grounding of the plane. Last week, Boeing was grilled by US Congress on its culpability in the tragedies, with CEO Dennis Mullenburg admitting to having made mistakes that led to the failure of the flight control systems on the two planes. Boeing is currently facing investigations by the US Senate and the House Transportation Committee as well as a criminal investigation by the Department of Justice.
Boeing has dropped 22 per cent since early March and days before the second plane crash, an Ethiopian Airlines flight that went down on March 10.
Last month, Boeing executive Kevin McAllister was ousted as president and CEO of the company’s commercial airplanes segment after reports surfaced that Boeing had failed to hand over certain communications to the US Federal Aviation Administration and congressional committees in connected with the crashes. The company also reported its third quarter results in October, where earnings of $1.45 per share came in lower than analysts had expected but revenue, while down 21 per cent from the same period a year earlier, was a consensus beat at $19.98 billion. (All figures in US dollars.)
But Boeing is likely to get past its current troubles, according to Newman, portfolio director and director of wealth management for Scotia Wealth, who says that the smart money is on the company’s strong fundamentals.
“There is a duopoly, there’s just two real players in here. And it’s not a question of if the Max Air comes back on, it’s when,” said Newman, in conversation with BNN Bloomberg on Friday.
“They just had their earnings and they missed, but they’re maintaining their guidance. They see the Max 737 returning to service in Q4. It’s trading at around 15x 2020, and we model 15 per cent earnings per share growth from 2018-2020 and that puts it at a PEG ratio of about one, which is pretty compelling for a growth company at now a reasonable valuation,” he says.
Boeing management has said that following upgrades to both training and cockpit software which was implicated in both crashes, the Max 737 should be ready for approval to fly again by the US Federal Aviation Administration before the end of 2019.
Newman says that investors may have to hold their nose while buying the stock but that they shouldn’t get sucked into the current drama surrounding the company.
“They’re going to get this right. It’s terrible, tragic events beyond the scope of financial commentary, but from a financial point of view, this is a stock that you do want to be buying at these levels,” Newman said.