The scoop on Boeing (Boeing Stock Quote, Chart, News NYSE:BA) is that the aerospace company is facing rough headwinds both internally and externally but fund manager John Zechner thinks investors should be looking past the near term to see Boeing for what it really is: one half of a virtual duopoly in a genuine growth industry.
Boeing on Wednesday announced a change in forecast for its air cargo business, saying the coronavirus outbreak along with continuing uncertainty surrounding trade between the US and China will likely put a damper on any growth in air cargo for 2020.
Boeing, the largest freighter aircraft manufacturer in the world, had initially estimated global growth in air cargo of one to two per cent for the year.
“If we are not seeing goods travel and airplanes fly that is under pressure. I think it is going to be really tough to see the cargo market grow this year,” said Randy Tinseth, vice-president of marketing at Boeing Commercial Airplane, as reported by CNBC.
The news is the latest wrinkle in Boeing’s plans, as the company continues to work its way towards getting federal regulatory approval for its key plane the 737 Max 8, which has been grounded internationally since last spring after two deadly crashes within the space of a few months.
Boeing announced this week that it has started test flights with the 737 Max to see how the plane’s software, said to be a central cause of two crashes, responds with a small test crew on board.
Events related to the 737 impacted Boeing’s share price significantly in 2019, where the stock lost 27 per cent of its value from early March to the end of the year. So far in 2020, Boeing is up seven per cent.
Zechner says that with Airbus and Boeing standing as the two juggernauts of the plane-making business, investors don’t have a lot to worry about with Boeing in the long run.
“Obviously, I don’t want to recreate the last year but the demand for airplanes over the next 20 years is still pretty large and there really are only two global players to meet that demand,” says Zechner, speaking to BNN Bloomberg on Monday.
“It’s a good free cash flow-generating story [and] there’s more defence spending going on in the United States. I think that in the end you’ll do okay buying Boeing in and around here,” he says.
“There are some issues in the short term but I think of the big-cap US growth stocks that this one probably will continue to do okay,” Zechner says.
Boeing reported its fourth quarter and full year results on January 29, showing its first annual loss since 1997, with the Max 8 issue taking much of the blame. The company lost $636 million in 2019 compared to a profit of $10.46 billion in 2018.
Revenue for the fourth quarter fell by 37 per cent to $17.91 billion and earnings came in at negative $2.33 per share compared to a profit of $5.48 per share a year earlier. (All figures in US dollars.)