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Boeing: Too Much Turbulence to Buy This Dow Stock Now

Boeing: Too Much Turbulence to Buy This Dow Stock Now
Mohamed Ahmed Soliman | Dreamstime.com

By Monday, 01 July 2019 02:07 PM Current | Bio | Archive

Shares of aerospace giant Boeing (BA) have gained 13% year-to-date, but at $365 per share, the stock remains well below its 52-week high of $440. The market remains concerned over the fate of the 737 MAX.

While Boeing stock has a solid runway of growth over the long-term, but recent events could continue to weigh on the stock valuation and the company’s growth.

Despite the fact that Boeing remains a highly profitable company with a 2.3% dividend yield, this Dow stock is not a buy yet.

Recent Events

Two separate plane crashes over the past year, involving Boeing’s 737 MAX model, have served as a constant overhang on the stock. These events have negatively impacted Boeing’s financial performance in recent periods. Due to the resultant safety concerns, the 737 MAX aircrafts have remained grounded since March and Boeing has reduced its production rate of this model due to depressed demand.

Boeing expects the 737 MAX aircraft to return to flight mode at some point in late 2019. But investors should not take this for granted, as the initial expectations were for late May or early June.

Boeing’s performance in the first quarter was negatively affected by the grounding of 737 MAX aircrafts and the safety concerns. Boeing delivered 149 commercial airplanes in the most recent quarter, down 19% from the same quarter last year. Revenue declined 2% in the first quarter, while core earnings-per-share declined 13%.

To be sure, Boeing continues to have a positive long-term future. The company forecasts that approximately 44,000 additional airplanes will be needed over the next 20 years in the commercial market, due to new shipments to emerging markets such as China and India, as well as shipments to replace older and less efficient models. Boeing currently has a backlog of more than 5,600 airplanes, which are valued at nearly $400 billion.

That said, the weak first-quarter results and ongoing headline risk regarding the 737 MAX could continue to weigh on Boeing stock. And, since Boeing shares rallied tremendously over the past five years, Boeing stock is still not significantly undervalued enough to buy yet.

Valuation Concerns

Boeing is expected to produce earnings-per-share of $16 for 2019. Based on this, the stock trades for a P/E ratio of 23, which is still fairly high in our view due to the lingering uncertainty facing the company. While Boeing is a strong business that should thrive over the long-term, the stock appears to be overvalued right now. Over the last decade, Boeing shares have traded with a P/E ratio of 17. If Boeing stock fell to a valuation level below 20 times earnings, it would represent a major drag on shareholder returns over the next five years.

Boeing stock has a 2.3% dividend yield, which is slightly above the S&P 500 Index average. And, Boeing should continue to raise its dividend each year, although the rate of increases is likely to slow down given the company’s recent difficulties. Still, with a dividend payout ratio projected to be roughly 51% for 2019, Boeing has a highly secure dividend.

Overall, we reiterate our hold rating on Boeing, but do not recommend the stock as a buy today. Future EPS growth and dividends will contribute positively to shareholder returns, but Boeing stock appears overvalued.

Ben Reynolds is CEO of Sure Dividend. Sure Dividend helps individual investors build high quality dividend growth stock portfolios for the long run.

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Boeing stock has a 2.3% dividend yield, which is slightly above the S&P 500 Index average.
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Monday, 01 July 2019 02:07 PM
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