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Steer clear of Boeing, this investor says

Stocks sporting double-digit losses are all over the place these days and that includes airplane maker Boeing (Boeing Stock Quote, Charts, News, Analysts, Financials NYSE:BA), which has seen its share price decimated in recent years.

And even though Boeing still stands as one of the twin big names (along with Airbus) in aircraft manufacturing, the path to recovery for the stock is murky at best, says portfolio manager Brian Acker of Acker Finley, who thinks this is one to avoid like the plague.

“The 737 I don’t think has been certified and the 777 — which I’ve personally flown on and it’s one of the most fantastic pieces of engineering I think I’ve ever seen — that’s having problems in terms of certification,” said Acker, president of Acker Finley, speaking on BNN Bloomberg on Thursday. 

“The public numbers that we get are not all the numbers. They have a black budget from the US military and no one can see that. So the issue is what do we have here? Do we have a military company or do we have a commercial plane company that is having trouble certifying their products even though they on the surface look like great products?” he said.

Boeing has taken shareholders for a bumpy ride in recent years, going back to the deadly crashes of two Boeing 737 Max aircraft in 2018 and 2019 and the ensuing grounding of the 737 Max worldwide. That took a bite out of BA but that was before the pandemic hit in 2020, causing more headaches for aviation and airline companies in a world where practically no one was flying anywhere for months at a time.

The result has been a stock that’s gone from over $400 per share in early 2019 to now around $120 — that’s about a 70 per cent drop. 

Recent events haven’t helped matters either. Boeing reported a larger than expected net loss for the first quarter 2021, delivered in late April, with management revealing that production of its 777X will be put on hold into 2023 with deliveries not expected until 2025 and leading to $1.5 billion in added costs for its second quarter. In total, Boeing’s Q1 loss was $1.2 billion compared to a loss of $561 million a year ago or a loss of $2.75 per share, which was on revenue of $13.99 billion. Analysts were expecting on average a loss of $0.27 per share on a topline of $16.02 billion. Boeing said its backlog at the end of the quarter stood at $371 billion, including almost 4,200 commercial airplanes.

“Through our first-quarter results, you’ll see we still have more work to do; but I remain encouraged with our trajectory, and we are on track to generate positive cash flow for 2022,” said Boeing CEO David Calhoun said in a note to employees in April. “We are a long-cycle business, and the success of our efforts will be measured over years and decades; not quarters.”

But the bad news and, more importantly, lack of good news on a way forward should be red flags for investors, says Acker.

“With airplanes falling out of the sky, that’s a major issue, and here we are in a bear market. There are no real fundamentals and looking at some of the estimates on earnings it looks like they will not make money this year and the company has a negative net worth — by the public numbers you see it has a negative $15 billion net worth in terms of their balance sheet,” Acker said.

“So, you can’t analyze it, they’re having problems with the public side of their company, I have no idea what’s going on in the dark side of their balance sheet and so this is an enigma,” he said. 

“The stock is going down. Just clear out,” Acker said. “We need more clarification from the company on where this thing is going, and if things are not clarified quickly I think this company will be in trouble. For the dark side that you can’t see, the government side, we’ll support it but what do you have at the end of the day? I’m not sure.”

Acker is not the only one questioning Boeing’s future. As CNBC reported last week, Ryanair CEO Michael O’Leary said Boeing needs a change at the top. 

“I saw some commentary recently that Boeing management has lost their way, and I find it hard to disagree with those sentiments,” O’Leary said to CNBC. “They’ve been late on the aircraft deliveries, we’ve heard nothing from them on the Max 10, despite the fact that we broke off negotiations with them last September.”

Last September, Ryanair had cancelled talks with Boeing over a multi-billion dollar order for 737 Max jets, with Ryanair saying there was a lack of agreement over pricing.

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